Japan’s Service Inflation Rises as Labour Costs Drive Price Growth Ahead of BOJ Meeting

Japan’s service-sector inflation gained momentum for the second consecutive month in September, reinforcing expectations that rising labour costs will help sustain inflation near the Bank of Japan’s (BOJ) 2% target. According to data released by the BOJ on Monday, the Services Producer Price Index (SPPI), which measures prices companies charge each other for services, climbed 3.0% year-on-year in September, up from a 2.7% increase in August.

The stronger price growth underscores how persistent labour shortages in key industries such as hospitality and construction are driving up costs. As demand for workers continues to exceed supply, companies are raising wages and service prices to offset higher employment expenses, contributing to a broader inflationary trend in Japan’s service economy.

The latest data arrives just days before the BOJ’s two-day policy meeting concluding on Thursday. Economists widely expect the central bank to maintain its short-term interest rate at 0.5%, a level set in January after the BOJ ended its decade-long ultra-loose monetary policy. The decision marked a turning point as policymakers concluded that Japan was close to achieving sustainable inflation backed by stronger wage growth.

Japan’s consumer inflation has remained above the 2% threshold for more than three years, signaling that price pressures are becoming more entrenched. The BOJ has indicated its willingness to gradually raise borrowing costs further if inflation continues to move upward in tandem with wage gains.

The steady increase in service prices highlights a shift in Japan’s economic landscape, where rising labour costs—once stagnant for decades—are now a key driver of inflation. As the BOJ navigates its path toward monetary normalization, market watchers will be closely monitoring whether wage-driven price growth can keep inflation stable without derailing Japan’s fragile economic recovery.