BOJ index shows more Japan firms passing on wage costs in services prices By Reuters

By Leika Kihara

TOKYO (Reuters) – The price Japanese companies charge each other for services with high labour costs rose 2.8% in April from a year earlier, the fastest increase in nearly four years, central bank data showed on Tuesday.

The data highlights how prospects of steady wage increases are prompting more companies to charge more for their services, a trend the Bank of Japan (BOJ) sees as a prerequisite to raise interest rates from current near-zero levels.

The index, which measures business-to-business prices for services with a high labour-cost ratio, hit 106.4 in April, the highest level since comparable data became available in 1985.

The year-on-year pace of increase, at 2.8%, was the fastest since August 2020.

The BOJ created the index, as well as another index measuring service prices for industries with a low labour cost ratio, as part of a base year revision for the services producer price index that takes effect from data for May.

The price for services where labour fees make up a high component of total cost, such as software development, has a stronger correlation with wages than that for low labor-cost services, which are swayed more by global commodity prices, according to the central bank.

“The price of services with high labour-cost ratio, on average, has accelerated its pace of increase in recent years, for a wider range of services,” the BOJ said a research paper analysing service price trends released on Tuesday.

Service prices are key to how soon the BOJ could next raise interest rates. BOJ Governor Kazuo Ueda has said the central bank will scrutinise whether wages will rise sustainably, and prod firms to translate the higher costs to service prices, in deciding when to raise interest rates.