Asia's Low-Impact Thursday: Japan PPI Report Due

It is a subdued day for economic data on Thursday, with Japan's PPI report capturing attention.

Japan's October producer price index, also known as the corporate goods price index, is due at 23:50 GMT (18:50 US Eastern). Market expectations are for a 0.3% monthly increase, reversing September's 0.3% decline. The annual rate is expected to be 6.5%, down from 6.8%.

September's figure fell short of forecasts. The annual rate slowed to 6.8% from 7.6% in August, largely due to a 13.3% year-on-year decline in agricultural prices as newly harvested rice became cheaper. An annual rate near 7% is still well above what the BoJ considers consistent with its price target, so a weaker October print does not mean inflationary pressure has dissipated.

Key aspects to watch include:

1. Import prices: The yen-based import price index rose 24.5% year on year in September, roughly 25%, as the weak yen continues to increase raw material costs. (Japan wholesale inflation misses at 6.8% but stays high enough to keep BOJ hike alive)
2. Energy pass-through: Higher oil prices, related to the Iran war, enhance the effect of a weak yen on a country that imports most of its energy.
3. Monthly momentum: If the month-on-month figure turns positive again, it would suggest the September dip was a blip and not the start of a downturn.

Implications for the BoJ

The BoJ held its policy rate at 1.25% in an 8-1 vote on October 30, with Takata dissenting in favor of a hike to 1.5%. The board also raised its FY2027 inflation forecast to 2.6% from 2.4%. In a Bloomberg survey, 83% of economists expect a hike in December, up from 35% the previous month. The next policy meeting is on December 17-18.

A data release that matches consensus is unlikely to alter the outlook for December. A clear upside surprise would boost the case for a hike and could provide some support to the yen. A downside surprise is unlikely to block a hike, as the BoJ focuses more on underlying consumer inflation and wages than on wholesale price changes.