Japan’s services inflation climbed 2.6 percent in January from a year earlier, official data showed on Wednesday, indicating that higher wages amid a tight labor market are continuing to fuel inflationary pressures in the economy.
The services producer price index, which measures the prices businesses charge one another for services, rose by the same 2.6 percent pace as in December, according to figures from the Bank of Japan.
BOJ signals readiness to continue tightening policy
The increase in Japan’s services inflation was largely attributed to higher fees for construction projects and temporary staffing services, the data showed.
The figures strengthen the view that rising wages are increasingly translating into broader price pressures, an outcome closely watched by policymakers. Consumer inflation has now stayed above the Bank of Japan’s 2 percent target for almost four years.
The Bank of Japan ended its decade-long ultra-loose monetary stimulus in 2024 and raised short-term interest rates to 0.75 percent in December, citing confidence that Japan was nearing sustainable achievement of its 2 percent inflation target.
With consumer inflation remaining above this target for nearly four consecutive years, the central bank has indicated it is prepared to continue tightening policy if price gains persist alongside solid wage growth. The newest services inflation figures are expected to reinforce the BOJ’s position that further interest rate increases could be warranted if price pressures persist along with stronger wage growth.
BOJ Governor Kazuo Ueda said policymakers will closely monitor whether expectations of steady wage increases encourage more companies to pass higher labor costs on to consumers when assessing the timing of the next rate hike.
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CPI falls to near 4-year low
Last week, Japan’s consumer price index data revealed that inflation eased to its lowest level in nearly four years in January, while core inflation moderated in line with expectations, helped by government subsidies on energy and a slower rise in food costs.
Headline CPI slowed to 1.5 percent year-on-year in January, down from 2.1 percent the previous month, marking its weakest reading since February 2022.
The softer inflation reading was driven mainly by a continued decline in energy prices, after the government of Sanae Takaichi in late 2025 passed legislation eliminating the additional gasoline tax.
Food price growth also eased as domestic supply conditions improved, particularly after authorities released additional stockpiled rice to temper soaring costs. The moderation in inflation added uncertainty over the Bank of Japan’s longer-term path for interest rates.
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