Japan's Nikkei 225 index advanced 1.2% to close at 68,308.59 points, with electronics stocks driving the rally. The market benefited from easing concerns over Federal Reserve rate hikes and a strong performance in US technology shares overnight.
According to sources, the administration led by Prime Minister Shigeru Ishiba supports the Bank of Japan's (BOJ) recent interest rate increases, with the next hike likely to occur in September or October. The sources added that the BOJ is concerned about the yen's weakness pushing up prices, while the government aims to reinforce the effectiveness of recent joint US-Japan currency intervention. Both sides have reached a consensus on the need for a near-term rate hike.
The BOJ holds statutory independence in monetary policy but must maintain close communication with the government regarding economic policy objectives. While the Ishiba cabinet cannot compel the BOJ to set specific interest rates, it can send signals that influence the central bank's decisions. In an emailed statement, the prime minister's office said, "We believe that specific monetary policy measures, including interest rate hikes, should be left to the BOJ's discretion." The statement also noted that the central bank should work closely with the government to achieve the 2% inflation target in a "stable manner." The BOJ declined to comment on the matter.
Data released on Thursday showed that Japan's wholesale prices in July continued to rise at a high annual rate, highlighting broadening inflationary pressures and strengthening market expectations for a September rate hike. The BOJ has already signaled an increasingly hawkish policy stance; a summary of opinions from its July policy meeting revealed that some policymakers called for accelerating the pace of rate increases to address inflation risks.
BOJ data showed that the Corporate Goods Price Index (CGPI) rose 7.2% year-on-year in July. While this was slightly below the market forecast of 7.4%, it was nearly unchanged from the 7.3% increase recorded in June. The data also showed a month-on-month increase of 0.1% in July, following a revised 0.5% rise in June.
"Wholesale inflation is expected to accelerate again as renewed tensions in the Middle East push up crude oil prices, which will in turn drive up the cost of energy and other goods," said Masato Koike, a senior economist at Sompo Institute Plus.
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