BOJ Sees Rising Service Prices as Key to Achieving 2% Inflation Target

Summary

  • The Bank of Japan’s (BOJ) analysis suggests that inflating service prices will step in as a main contributor to price increases, supporting its sustainable 2% inflation target.
  • Based on BOJ data, the expansion in the services producer price index maintained its steady pace from a revised 2.4% increase in November.
  • The BOJ takes a keen interest in service price trends as it provides insight on whether there is correlated growth between wages and inflation, a critical condition for scaling down its substantial monetary stimulus.

Bank of Japan’s Perspective on Inflation

The Bank of Japan (BOJ) anticipates a shift in the primary driver of price increases – from cost-push inflation to inflating service prices. This change is expected to support the realization of a sustainable 2% inflation target.

Stable Increase in Service Producer Price Index

A consistent rise in the services producer price index, a measure of the charges among businesses for services, was observed from a revised 2.4% increase in November, BOJ data revealed on Friday. This escalation noted in November was the most rapid since March 2015.

Service Price Trends: Key Indicator for BOJ

The BOJ maintains a keen interest in the movement of service prices. This forms a crucial indication of whether there is a tandem rise in wages and inflation. The bank stated such coordinated growth as one of the preconditions for phasing out its considerable monetary stimulus.

The described inflation trends and their potential impact on the BOJ’s monetary stimulus could be of importance to traders monitoring the JPY currency in the foreign exchange market. Changes in monetary policy are likely to bring about notable shifts in currency value.

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