Japan service inflation hits over two-year high, bolsters case for further BOJ rate hikes

The Services Producer Price Index (SPPI), which measures the prices companies charge each other for services, rose 3.7 per cent year-on-year in August, up from 3.6 per cent in July, according to data released by the BOJ on Monday.

The rise was driven by higher freight, advertising and rental lease fees, pointing to broader price pressures in Japans economy.

The Services Producer Price Index (All items) rose 3.7 percent from the previous year, the BOJ said. The index excluding international transportation costs rose 3.2 per cent year-on-year.

The latest data comes after the BOJ raised its key interest rate by 25 basis points to 1.25 per cent from 1 per cent earlier in September. The move was aimed at adjusting monetary policy as inflation and wage pressures continue to remain elevated.

The BOJ has also warned that underlying inflation could exceed its 2 per cent target amid rising wage and price expectations.

The rate hike was approved by the BOJs Policy Board with a 7-2 majority vote.

At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided, by a 7-2 majority vote...The Bank will encourage the uncollateralized overnight call rate to remain at around 1.25 percent, the central bank said in a release.

The September rate increase took Japans policy rate to its highest level since 1995, as the central bank continues with its monetary policy normalisation.

The BOJ had earlier said it would continue to raise the policy interest rate and adjust the degree of monetary accommodation depending on developments in economic activity, prices and financial conditions.

During its latest monetary policy meeting, the central bank also set the basic loan rate under its complementary lending facility at 1.5 per cent.It also revised lending rates for funds-supplying operations aimed at supporting financial institutions in disaster-hit areas and those against pooled collateral. (ANI)