TOKYO- A leading indicator of Japan’s service-sector inflation hit 2.9 percent in December as prices rose for a broad range of services such as accommodation and transportation, data showed, keeping alive expectations of further interest rate hikes by the central bank.
Service-sector inflation is being closely watched by the Bank of Japan for clues on whether prospects of sustained wage gains will prod firms to continue raising prices, and keep inflation sustainably around its 2 percent target.
The December year-on-year gain in the services producer price index, which measures the price companies charge each other for services, compared with a 3.0 percent increase in November, BOJ data showed on Tuesday.
The BOJ raised interest rates last week to their highest since the 2008 global financial crisis and revised up its inflation forecasts, underscoring its confidence that rising wages will keep inflation stable around its 2 percent target.
BOJ Governor Kazuo Ueda said the central bank will keep raising interest rates as wage and price increases broaden, adding that there was scope to push up borrowing costs further before they reach levels deemed neutral to the economy.
Meanwhile, Japan’s government on Tuesday nominated Junko Koeda, an academic who had warned of the cost of prolonged monetary easing, to join the Bank of Japan board in March, a choice analysts say will keep the central bank on course to raise interest rates.
If approved by parliament, it will be the first time two women will take seats at the male-dominated, nine-member board. There has been only one woman in the board up until now; the current member, Junko Nakagawa, joined in 2021.
The nomination comes at a critical time for the BOJ, which last week raised interest rates to their highest since the 2008 global financial crisis on the view Japan was on the cusp of sustainably achieving its 2 percent inflation target.
An academic specializing in macroeconomics and finance at Japan’s Waseda University, Koeda has frequently participated in BOJ-hosted panels to offer insights on the effects of monetary policy. She was a member of a BOJ workshop in December 2023 that debated the pros and cons of past unconventional easing steps.
A month after the BOJ’s decision in March 2024 to end negative interest rates, Koeda endorsed the move in a newspaper commentary, saying that it was in the right direction and called for the need to shrink the BOJ’s massive balance sheet.
In a separate commentary written in 2022, she had warned of the cost of prolonged, ultra-low interest rates.
“Her appointment probably meshes with Governor Ueda’s hope to deepen the bank’s theoretical understanding of its monetary policy,” said Mari Iwashita, a veteran BOJ watcher who is currently executive economist at Daiwa Securities.
“It will likely help deepen the BOJ’s internal debate on where Japan’s neutral rate lies,” Iwashita said, referring to financial markets’ focus on how much higher the bank could push borrowing costs without dragging on economic growth.