The Bank of Japan reported that the producer price index, or PPI, a gauge of wholesale inflation, rose 7.6% in August from a year earlier, exceeding analysts' forecast of 7.4%. The increase was driven by prices for petroleum and coal products, chemicals, information and communications equipment, and non-ferrous metals, the same factors that pushed the index higher in July. Although the August reading slowed from 7.7% in July, which was the highest level since February 2023, the index's third consecutive month above 7% could support the Bank of Japan in proceeding with interest rate hikes to curb rising inflation risks. The report also said Japanese companies continue to face pressure in passing on higher production costs to consumers, given rising energy, transportation and packaging prices, as well as wage increases amid a tight labor market. The market widely expects the Bank of Japan to raise its policy rate by another 0.25% to around 1.25% at its meeting on September 18.
Hotter-than-expected PPI and a widely expected BOJ rate hike push JGB yields up, so the 10Y bond price falls.
