Japan's wholesale inflation accelerates, signaling continued cost pressures

Japan's wholesale inflation hit 4.2% in March, up from the previous month, showing persistent cost pressures exacerbating the pain businesses are experiencing from uncertainty over U.S. tariff policy.

The data highlight the challenge the Bank of Japan faces in determining when to next raise interest rates, especially given the push and pull from growing domestic inflationary pressures and an expected hit to growth from President Donald Trump’s tariffs.

The Corporate Goods Price Index (CGPI), which measures what businesses charge for goods and services, rose more than expected by 3.9 percent, compared with a 4.1 percent increase in February.

Data released by the central bank on Thursday showed that prices of various commodities rose across the board, with food prices increasing 3.1% year-on-year and oil and coal prices rising 8.6%.

However, the import price index measured in yen fell 2.2% in March from a year earlier, following a 0.9% drop in February.

"Wholesale inflation is likely to slow due to lower commodity costs and a rebound in the yen," which would help moderate consumer inflation, said Masato Koike, senior economist at Sompo Institute Plus.

High food costs and rising wages have kept consumer inflation above the Bank of Japan’s 2 percent target for nearly three years, supporting expectations that the central bank will continue to raise interest rates, currently at 0.5 percent.

But Trump’s decision to impose sweeping tariffs on imports threatens to derail Japan’s modest recovery in its export-reliant economy and complicate the Bank of Japan’s path for raising interest rates.

Bank of Japan Governor Kazuo Ueda said on Wednesday the central bank must examine "without preconceptions" whether the economy is on track to meet its forecasts, suggesting the central bank could pause on rate hikes as U.S. tariffs hit markets.