Japanese wholesale prices rose slightly more than expected in October from a year earlier on rising oil prices, but investors, preoccupied with global markets, stuck to the view that the Bank of Japan will wait until next year to lift rates.
The data came several hours before the central bank kicks off a two-day policy meeting at which board members are widely expected to keep the key policy rate unchanged at 0.5 percent for for the 11th straight review.
Financial markets did not react much to the data, but the Nikkei 225 Average tumbled to its lowest level this year on big Wall Street losses and the yen's recent sharp gains against the dollar. Japanese government bond futures jumped to a 21-month high.
The corporate goods price index (CGPI), which tracks trends in wholesale prices of goods, rose 2.4 percent in October from a year earlier largely because of higher crude oil prices, BOJ data showed on Monday.
That was slightly higher than economists' median forecast of a 2.3 percent rise and compared with a 1.7 percent rise in September.
"If the economy remains on a solid footing, the rise in wholesale prices will gradually spread to consumer prices," said Seiji Adachi, senior economist at Deutsche Securities.
"But there is uncertainty in the outlook, as seen in worsening consumer sentiment, so any rise in consumer prices will likely remain very small in the months ahead."
The central bank has left the key policy rate unchanged at 0.5 percent since February when it raised rates by a quarter point -- its first rate hike since July 2006 -- and many investors expect the BOJ to hold off from raising rates at least until early next year.
"While the Bank of Japan's economic and price scenario is still valid, there are very few factors that warrant it to rush in raising interest rates," Adachi said.
Separate government data showed that Japan's current account surplus rose 40.4 percent in September from the same month a year earlier, higher than a median forecast of a 31.0 percent increase, partly on the back of solid exports -- the main engine of the ongoing recovery.
Financial markets will now look to Japan's third-quarter economic growth data due at 8:50 a.m. on Tuesday, just hours before the BOJ's meeting ends, to gauge the strength of the world's second-largest economy.
A Reuters poll of 35 economists produced a median forecast of a 0.4 percent rise in GDP in July-September from the previous quarter in real, price-adjusted terms, or an annualized 1.7 percent.
Compared with a month earlier, the corporate goods price index rose 0.3 percent in October, beating the consensus forecast for a 0.1 percent rise. Domestic final consumer goods prices, which economists say loosely track consumer prices, rose 0.7 pct in October from a year earlier.
Economists expect rising crude oil and commodity prices to continue pushing up wholesale prices. But companies have had difficulty passing on higher raw material costs to consumers, resulting in tame consumer price inflation.
In a twice-yearly outlook report released last month, the BOJ cut its inflation forecasts, but Governor Toshihiko Fukui has stuck with his plan to gradually raise interest rates, fearing cheap money will eventually cause the economy to overheat.
The central bank now expects core consumer prices, which have been falling since February, to be flat in fiscal 2007/08 ending in March and to rise 0.4 percent in fiscal 2008/09.
Japan's economy has been growing as a trend since early 2002 in the longest expansion of the postwar era, albeit at a much more moderate pace than in previous booms.