By Leika Kihara
TOKYO—Japan’s annual wholesale inflation hit 4.2 percent in March, accelerating from the previous month in a sign of persistent cost pressures that add to corporate pain from uncertainty over US tariff policy.
The data highlights the challenge the Bank of Japan faces in judging the timing of its next interest rate hike, particularly given push-pull forces exerted by mounting domestic inflationary pressure and the expected hit to economic growth from President Donald Trump’s tariffs.
The rise in the corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, exceeded a median market forecast for a 3.9 percent increase and followed a 4.1 percent gain in February.
Prices rose for a broad range of goods, including a 3.1 percent year-on-year gain in the cost of food and a 8.6 percent jump in petroleum and coal prices, central bank data showed on Thursday.
The yen-based import price index, however, fell 2.2 percent in March from a year earlier after a 0.9 percent drop in February.
“Wholesale inflation is likely to slow ahead due to falling commodity costs and the yen’s rebound,” which will help moderate consumer inflation, said Masato Koike, senior economist at Sompo Institute Plus.
Stubbornly high food costs and rising wages have kept consumer inflation above the BOJ’ 2 percent target for nearly three years, underpinning market expectations the central bank will continue raising interest rates from the current 0.5 percent.
But Trump’s decision to impose sweeping tariffs on goods imports has complicated the BOJ’s rate-hike path by threatening to derail a moderate recovery in Japan’s export-heavy economy.
BOJ Governor Kazuo Ueda said on Wednesday the central bank must scrutinise “without preconception”& whether the economy is on track to meet its projection, suggesting the chance of a pause in interest rate hikes as US tariffs jolt markets.
Meanwhile, Japanese government bonds were sold on Thursday as investors moved money back to stocks and cheered US President Donald Trump’s reversal of some of his heaviest import tariffs.
Benchmark 10-year yields went up 10 basis points to 1.377 percent in morning trade. Futures fell nearly 1.3 points. The Nikkei stock index roared 8.6 higher.
Selling lifted two-year yields about half a basis point to 0.669 percent and at the super-long end, 30-year yields, which had shot to a 21-year high a day earlier were fairly steady at 2.7 percent.
Overnight Trump announced a 90-day pause on duties imposed on many countries though he left levies on China and a 10 percent blanket duty on almost all imports. And the reversal did not appear to include winding back auto, steel and aluminium taxes. Analysts said the moves and mood in the JGB market were a far cry from a day earlier when long bonds were being dumped in a near panic as investors liquidated just about everything.
Wednesday had been an historic day in US and global bond markets as the traditionally safe assets were sent into a tailspin as hedge funds unwound leveraged bets in bonds and investors scrambled for cash above all.
That hit Japan especially hard as the sudden steepening of the yield curve caught out markets that were positioned for flattening as Japan raises short-term rates, said Kentaro Hatono, head of global fixed income, Asset Management One.
