Japan's wholesale prices rose 7.1% in a year, as the weak yen and oil push up costs

What happened

The prices Japanese companies charge each other for goods rose 7.1% in the year to October, the Bank of Japan reported on 12 November, up from 6.8% in September and above economists' forecasts. Of 515 items surveyed, 469 rose in price and only 35 fell, according to Xinhua.

The cost of imports, measured in yen, jumped 24.8% on the year. Nonferrous metals such as copper rose 31.7%, petroleum and coal products 15.9%, information and communications equipment 15.9% and chemicals 15.5%. Agricultural, forestry and fishery products were the only group that fell, by 25%.

Why import costs are soaring

Two forces multiply each other. First, world prices of oil and metals are much higher than a year ago, because of the war involving Iran and strong demand for copper. Second, the yen is weak, near 158 to the dollar, so every dollar of imports costs more yen. Japan imports almost all its energy, so it feels both. Our exchange rates mechanic explains how a weak currency raises import prices.

Why the Bank of Japan watches this

Wholesale prices are an early signal: companies pass higher costs on to consumers after a lag. Governor Kazuo Ueda has said the pace of future rate rises depends on how far wholesale price pressure passes through to consumer inflation. Many analysts expect the BoJ to raise its rate from 1.25% to 1.5% at its meeting on 17–18 December, and swaps priced about a 77% chance of a rise in early November (our story). A rise would also tend to support the yen, which would ease import costs in turn. See how central banks respond to inflation.

Where it sits in the chain

This is Link 1, inflation, driven by Link 3, the currency: a weak yen and dear commodities raise firms' costs, which feed into consumer prices and pressure the central bank.

What to watch

• Japan's national consumer prices for October, due later this month.
• The yen, and any sign of government intervention to support it.
• The BoJ's December meeting.