By Leika Kihara
TOKYO, April 10 (Reuters) – Japanese wholesale inflation jumped in March and the central bank’s deputy governor called for vigilance to the risk of stagflation, highlighting mounting price pressure that may prod the central bank to raise interest rates as soon as this month.
The five-year Japanese government bond (JGB) yield touched a record high on Friday, as signs of broadening inflation led markets to price in roughly a 60% chance the Bank of Japan will raise rates at the next meeting on April 27-28.
“We will take the most appropriate monetary policy decision from the standpoint of stably achieving our 2% inflation target with an eye on the scale and length of shock, as well as economic environment at the time,” BOJ Deputy Governor Ryozo Himino told parliament on Friday.
The corporate goods price index (CGPI), which measures the prices companies charge each other for their goods and services, rose 2.6% in March from the same month a year earlier, BOJ data showed on Friday, exceeding the median market forecast of 2.4%.
It accelerated from February’s revised 2.1% as companies passed on rising metals, chemical and other raw material costs through price increases for machinery and food, the data showed.
On a month-on-month basis, the index rose 0.8% after a revised 0.1% increase in February driven by rising prices of gasoline, chemical goods and metal products.
An index measuring yen-based import prices jumped 7.9% on year in March after a revised 2.7% gain in February.
Markets have been rattled after the Iran war effectively shut the Strait of Hormuz, a chokepoint for about a fifth of global oil and gas flows, driving up crude oil prices and the safe-haven dollar against the yen.
The war has complicated the BOJ’s rate-hike plan by adding to inflationary pressure, while weighing on corporate profits and an economy heavily reliant on fuel imports from the Middle East.
Himino said he did not believe Japan was in a state of stagflation with inflation moving around its 2% target and the economy growing above its potential.
“But if the Middle East conflict persists and works to push down growth while accelerating inflation, it would pose a dilemma and difficult problem for us,” Himino said.
Japan’s core consumer inflation has moved around the BOJ’s 2% target for nearly four years, prodding the central bank to pledge further rate hikes.
But consumer confidence worsened in March at a pace unseen since the COVID-19 pandemic in 2020, a government survey showed on Thursday, swelling the toll on a fragile economy from soaring fuel costs caused by the Middle East conflict.
(Reporting by Leika Kihara; Editing by Christopher Cushing and Shri Navaratnam)
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