A leading indicator of prices within Japan's services sector recorded a 2.6% year-on-year rise in December, the Bank of Japan's data showed on Tuesday, indicating that labour shortages are continuing to encourage companies to pass higher costs onto clients.
The services producer price index, which measures the prices firms charge one another for services, followed a 2.7% increase in November, according to the BOJ. The latest reading shows a slight moderation in the monthly pace but maintains an elevated level of services inflation.
The BOJ's data highlighted price gains in labour-intensive segments, explicitly naming hotel services and construction work as areas where charges climbed. Those sectoral movements underscore the central bank's assessment that a tight employment market will continue to push up wages and, in turn, service-sector prices.
Policy makers have already moved to withdraw extraordinary support. The BOJ concluded a decade-long, massive stimulus programme in 2024 and in December raised short-term interest rates to 0.75% on the judgment that Japan was nearing a durable achievement of its 2% inflation target.
With consumer inflation having exceeded 2% for nearly four years, the BOJ has indicated it is prepared to continue raising borrowing costs if price increases persist and are accompanied by sustained wage gains.
BOJ Governor Kazuo Ueda said on Friday that the central bank would monitor closely whether prospects for steady wage increases lead more companies to pass on rising labour costs, and that this assessment will inform decisions about the timing of future rate hikes.
In an analysis published on Tuesday, the BOJ noted that the weak yen is exerting a growing influence on inflation not only through higher import prices but also via second-round effects, such as greater pass-through of labour costs into prices.
Impacted sectors - The developments are most directly relevant to services industries, particularly labour-intensive areas such as hospitality and construction, and have implications for monetary policy and broader financial conditions.
Context limitations - The available data reflect inter-firm service charges and the BOJ's policy statements; no new consumer inflation figures or wage statistics beyond the BOJ's references are provided in this release.