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Japan's Wholesale Prices Rise, Current Account Surplus Sets Record

Japanese wholesale prices rose as expected in August from a year earlier on high crude oil prices, but it did little to alter market views that there is scant chance of a rate hike by the Bank of Japan in the coming months.

Separate data on Wednesday showed Japan's current account surplus hit a record high for the month of July, as a rising income surplus offset shrinkage in the trade surplus.

The corporate goods price index, which tracks trends in wholesale prices of goods, rose 1.9% in August from a year earlier, BOJ data showed, slightly higher than economists' median forecast for a 1.8% rise but the slowest pace of growth in six months.

"The slower rise in wholesale prices is largely due to the yen's rise, which pushed down import prices. Other parts of the data aren't much different from the past trend, which is that higher raw material costs continue to push up overall wholesale prices," said Seiji Adachi, a senior economist at Deutsche Securities.

"The data won't have any impact on monetary policy. It's hard for the BOJ to raise interest rates when the United States may possibly lower them," he said.

Wholesale prices have been rising steadily, partly on high raw material prices. But the upward pressure has not spread to consumer prices, which have fallen slightly in recent months as companies remain reluctant to pass on higher costs to consumers.

The BOJ expects consumer prices to start to rise later this year and says it will raise rates gradually in line with improvements in economic and price conditions.

But many market participants expect the central bank to hold off on raising rates at its policy meeting next week and views are spreading that there will be no more rate hikes this year.

Compared with a month earlier, the CGPI was unchanged in August, as expected by economists.

Current Account Surplus Hits Record

Government data also showed that the current account surplus expanded 4.5% in July from a year earlier to 1.8559 trillion yen (US$16.33 billion), compared with a consensus forecast for a 7.2% rise.

The trade surplus fell 17.6% to 784.3 billion yen, with exports rising 11.1% and imports up 16.6%.

The income surplus, or gains made on overseas investments that have been underpinning Japan's current account surplus, rose 24.6% from the same month a year earlier.

Economists have said turbulence in global markets stemming from problems in the U.S. subprime sector is unlikely to have a big impact on Japan, but surprisingly weak U.S. payrolls data last week sparked fears Japan may suffer if consumers in its top export market stop buying cars and flat-screen TVs.

The BOJ opted to leave its overnight call rate target unchanged at 0.5% in August in light of the credit squeeze sparked by jitters over the subprime problem. Its next policy decision comes on Sept. 19, a day after the Federal Reserve meets.