(Bloomberg) -- Service prices among businesses in Japan jumped by the most in about 33 years, adding to the list of supporting factors for the central bank to raise interest rates, with a policy meeting looming next week.
The cost of services among companies climbed 3% in June, the biggest gain since September 1991 excluding the impact of sales tax hikes, according to a BOJ report Thursday. The result came in hotter than economists’ estimate of 2.6%.
Advertising and hotels were among the largest gainers amid widespread moves to reflect rising labor costs, according to the central bank.
The data is likely to keep traders on high alert for a rate hike at the end of a two-day meeting on July 31. The report supports the BOJ’s view that inflation is going to spread to services as the driving force of price growth shifts away from cost-push factors. The central bank has said it will adjust the level of monetary easing if inflation continues to follow expectations.
BOJ officials see weakness in consumer spending complicating their decision over whether to raise interest rates, according to people familiar with the matter in a report on Monday.
The base case of a majority of surveyed BOJ watchers is for the bank to hold rates at its July meeting. At the gathering the bank is set to reveal its plan for cutting back bond buying after it ended more than a decade of massive monetary easing in March.
Many of the economists expecting a stand pat decision on rates next week say it would be too much of a shock for the BOJ combined the slashing of its bond purchases with a rate hike.
Still, 94% of them acknowledge there is a risk of a rate increase given that inflation is still elevated and the yen remains weak even after recent gains. Volatile overnight swaps indicated Thursday morning that market players see around a 45% chance of the bank moving next week.
In a rare move, a senior ruling party official called for a clearer signaling of normalization by the bank earlier this week.
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