Japan’s firms pass costs to customers at fastest pace since 1992

Producer prices among services with a high labour cost ratio rose 3.3% in October from a year earlier, according to the BOJ data released Tuesday.

Japanese companies are passing on rising labour costs to business customers in the form of higher service prices at the fastest pace in 32 years, according to Bank of Japan data that support the case for raising the benchmark interest rate.

Producer prices among services with a high labour cost ratio rose 3.3% in October from a year earlier, according to the BOJ data released Tuesday. The indicator was made public in June as authorities sought hints of a virtuous economic cycle by observing whether businesses had the will and ability to raise prices to cover their increased labour costs. If the impact of a 2014 sales tax hike is excluded, the October rise was the fastest since 1992.

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Tuesday’s data will come as encouraging news to Governor Kazuo Ueda, who has indicated he’s open to considering whether a rate hike is warranted at next month’s policy board meeting. Recent data have indicated that economic and inflation trends are developing in line with the BOJ’s projections, underpinning expectations among economists that the bank will raise borrowing costs by January.

There is a broad move among businesses to pass their labor costs to their customers via services, according to a BOJ official who briefed reporters on the Services Producer Price Index. The index overall rose 2.9% from a year earlier.

Ueda last week said it’s “impossible” to predict the outcome of the December 18-19 gathering, as there’s a vast amount of fresh data and information to be scrutinised between now and then. Among other things, the BOJ has highlighted the need to monitor the US economy in particular as uncertainties remain.

President-elect Donald Trump this week vowed additional tariffs on China as well as US neighbours Canada and Mexico, cooling sentiment in financial markets in Asia hours. The remarks damped hopes that Trump might temper his trade policies during his second term.

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