The depreciation of the yen drives Japan's wholesale inflation soaring in October, adding uncertainties to the central bank's interest rate hike decision.

In October, Japan's wholesale inflation rate accelerated to the fastest pace in over a year, largely due to the depreciation of the yen pushing up the cost of some imported goods, adding complexity to the Bank of Japan's decision on when to further raise interest rates. According to data released by the Bank of Japan on Wednesday, the Corporate Goods Price Index (CGPI) rose by 3.4% year-on-year in October, surpassing market expectations of 3.0%, indicating strong momentum in price growth of goods and services between companies. Specifically, the index had risen by 3.1% in September, reaching the fastest year-on-year growth since August 2023. The main factors driving this growth include the surge in rice prices, as well as the increase in costs of non-ferrous metals, food, and oil, reflecting the continuous pressure on companies in terms of raw material costs. Meanwhile, although the import price index in yen terms fell by 2.2% year-on-year last month, the decline was narrower than the 2.5% drop in September. On a month-on-month basis, the index rose by 3.0%, compared to a decrease of 2.8% in September, reflecting a 4.3% appreciation of the US dollar against the yen in that month, causing import costs for many companies to remain high. Masao Namiroku, Chief Economist at the Nomura Research Institute, pointed out that the inflationary pressure on wholesale prices of goods remains severe, despite weak consumer momentum, and that the likelihood of a rate hike in December is increasing due to ongoing wage increases. Previously, the Bank of Japan ended its negative interest rate policy in March and raised short-term rates to 0.25% in July, citing progress in achieving the 2% inflation target. Bank of Japan Governor Haruhiko Kuroda emphasized that if inflation is mainly driven by strong domestic demand and wage increases, rather than rising raw material costs, the central bank will be prepared to raise rates again. The risk of inflation due to the depreciation of the yen was also a key factor in the decision to raise rates to 0.25% in July. However, despite nearly 90% of economists predicting that the Bank of Japan will raise rates by the end of March, a survey conducted from October 3rd to 11th showed that the majority of economists believe that the Bank of Japan will not raise rates again within this year.