Japan's Wholesale Inflation Rises to 4%, Adding Pressure on BOJ

Japan's wholesale inflation reached 4.0 percent in April as companies continued to pass on rising raw material and labor costs, according to data, highlighting price pressure that will likely keep the central bank on track to raise interest rates further.

According to a Bank of Japan official briefing on the data released on Wednesday, the impact of US President Donald Trump's sweeping tariffs announced on April 2 was minimal, in part because Washington imposed a 90-day pause, which left many firms to finalize their pricing strategy.

The corporate goods price index (CGPI), which gauges how much businesses charge one another for goods and services, increased by 4.3 percent annually in March but slowed to a rate consistent with the median market forecast.

For the eighth consecutive month, the index hit a new high of 126.3, suggesting that persistent inflationary pressures are contributing to higher consumer prices, albeit slowly.

After a revised 2.4 percent decline in March, the yen-based import price index dropped 7.2 percent in April compared to the same month last year, suggesting that the currency's recovery was relieving pressure on import prices.

Global declines in some commodity prices, as well as the phase-out of domestic subsidies aimed at lowering fuel costs, helped to moderate wholesale inflation, according to data.

However, in April, when businesses normally review prices, they kept raising prices for a range of goods. This was the beginning of Japan's fiscal year.

April saw a 3.6% increase in food and beverage prices over the previous year, which was more rapid than the 3.4% increase in March. According to the data, prices for agricultural goods increased 42.2% in April after rising 39.1% the month before.

The figures paint a mixed picture for the BOJ, which must weigh risks from Trump's tariffs against domestic inflationary pressures when deciding when to resume interest rate hikes.

"On April 2, the harm caused by US tariffs to the world economy and trade might be less severe than anticipated." Takeshi Minami, chief economist at Norinchukin Research Institute, asserts that tariffs on automobiles, auto parts, steel, and aluminum are still in effect and that their effects on producers and the economy cannot be disregarded.

"The yen, on the other hand, is resuming its downtrend," the economist said. "While wholesale inflation is seen slowing toward the year-end, there's a chance the BOJ could raise rates again around September or October."

The BOJ ended a decade-long, massive stimulus program last year and raised short-term interest rates to 0.5% in January. While it has indicated a willingness to raise rates further, the economic fallout from Trump's tariffs has complicated its decision on the next rate hike date.

Core consumer inflation, the key indicator used by the BOJ to set monetary policy, rose to 3.2% in March due to persistent increases in food costs, remaining above the central bank's 2% target for three years.