Japan Wholesale Prices Rise 2.7% in November

Japanese wholesale prices rose 2.7% in November from a year earlier, a tad slower than in October but matching economists' forecasts, Bank of Japan data showed Tuesday.

The data provided financial markets with little insight into whether the Bank of Japan will raise interest rates later this month.

The rise in the corporate goods price index (CGPI), which tracks trends in wholesale prices of goods, slowed from 2.8% in October and a 25-year high of 3.6% in September, largely because oil prices have dropped.

Compared with a month earlier, the CGPI was down 0.1% in November. "The prices will continue to soften as a slowdown in the U.S. economy is expected to push down international commodity prices," said Azusa Kato, an economist at BNP Paribas.

While the news is unlikely to have a major impact on monetary policy, it adds to a recent batch of weak data that has scaled back market expectations that the BOJ will tighten credit at its next policy meeting on Dec. 18-19.

"Prices of final products (in CGPI) are almost flat year-on-year. That suggests that domestic demand is not growing much, so companies cannot pass on the rise in raw material costs to their product," said Takumi Tsunoda, an economist at Shinkin Central Bank Research Institute.

Junichiro Takeuchi, a director at the BOJ's research and statistics division, said future price movements would largely depend on foreign exchange, oil and non-ferrous metal prices and whether companies would be able to raise prices with increased raw material and fuel costs.

He said the import price index in November rose 7.7% from a year earlier but slipped below 10% for the first time in 17 months due to a fall in oil prices and the yen's rise against the dollar.

Financial markets showed no reaction to the CGPI figures.

Market traders are divided over whether the BOJ will increase rates this month or wait until early next year to further examine economic data. Money markets are pricing in about 50% chance of a rate increase at this month's meeting.

Hawkish comments by two of the central bank's nine policy board members last week boosted expectations of a rate hike at the next meeting. But a recent batch of weaker-than-expected economic data, including revised gross domestic product for July-September, has prompted some to say Japan's economic recovery may be more fragile than previously thought.

July-September GDP growth was revised down to a softer-than-expected 0.2% from an initial reading of 0.5%, weighed down by tame capital spending and weakness in personal consumption.

The BOJ has kept its monetary policy unchanged since July, when it raised interest rates for the first time in six years. It now sets the key overnight call rate target at 0.25%.