Japan Inflation Steady as Yen Decline Adds Pressure on BOJ
Japan’s wholesale inflation remained stable in September, while most households expect prices to continue rising over the next year.
The data, released on Friday, suggests that price pressures may keep the Bank of Japan (BOJ) on track for another interest rate hike.
Analysts say the yen’s recent sharp decline—caused by fading market expectations of an immediate rate increase—could further fuel inflation.
A weaker yen makes imports more expensive, adding pressure to household budgets already strained by rising costs.
Inflation Challenges for Japan’s New Leadership
Persistent inflation poses a growing challenge for Japan’s new ruling party leader, Sanae Takaichi, who has vowed to tackle the country’s rising living expenses after being chosen as the next prime minister.
“We’re starting to see a negative cycle,” said Izuru Kato, chief economist at Totan Research.
“The BOJ’s cautious pace of rate hikes is weakening the yen and driving up the cost of living.”
Prices Hold Firm Across Key Sectors
The Corporate Goods Price Index (CGPI)—which tracks prices companies charge each other for goods and services—rose 2.7% year-on-year in September, matching August’s pace and exceeding forecasts for a 2.5% increase.
Economist Yutaro Suzuki from Daiwa Securities expects wholesale inflation to stay above 2% for now, with food and energy prices continuing to climb.
A separate survey showed that 88% of Japanese households expect prices to rise within the next year, up from 85% three months ago.
This signals growing public concern that inflation is becoming a lasting issue.
Yen Weakness and Import Costs
The BOJ closely monitors wholesale prices as a leading signal for consumer inflation, its primary benchmark for monetary policy.
The yen-based import price index fell 0.8% in September, a smaller drop compared to 3.9% in August, showing that import costs are stabilizing despite currency pressure.
Meanwhile, food and beverage prices rose 4.7% year-on-year, only slightly below August’s 4.9% increase.
Agricultural goods prices, including rice, jumped 30.5%, down from August’s steep 41% surge.
BOJ officials expect food inflation to ease later this year, but that outlook could change if the yen continues to weaken, driving up raw material costs.
Yen’s Drop and Policy Outlook
The yen was on track for its sharpest weekly decline in a year after Takaichi’s victory reduced market expectations of an immediate BOJ rate hike.
Takaichi has long supported expansionary fiscal and monetary policies and said her top priority will be a support package to help households manage higher living expenses.
The BOJ ended its decade-long ultra-loose policy last year, raising interest rates to 0.5% in January amid hopes Japan was nearing sustainable 2% inflation.
However, Governor Kazuo Ueda continues to proceed cautiously, emphasizing that future rate hikes must be backed by domestic demand, not just rising import prices.
