FX.co ★ Wholesale inflation in Japan jumps to three‑year high

Japan, the world’s fourth‑largest economy, has reported a sharp acceleration in wholesale (industrial) inflation. According to Kyodo News, the country’s wholesale price index surged to 6.3% year‑on‑year last month, marking a three‑year high. The main driver of this powerful inflationary pressure was the ongoing armed conflict in the Middle East, which pushed up the cost of imported commodities and petroleum products. By comparison, wholesale inflation stood at 5.3% in April. This rapid rise in factory gate prices has cemented investor expectations of a swift and significant tightening of monetary policy by the Bank of Japan.

The macroeconomic picture has raised serious concerns among experts. Former BOJ board member Makoto Sakurai issued a stark warning, saying Tokyo risks repeating historical mistakes that previously plunged the country into years of stagnation. In his view, the odds are high that the Asian economy is on the verge of stagflation amid soaring prices and sluggish GDP growth. Sakurai stressed that the regulator risks falling irrevocably behind economic reality and losing control of inflation if it refuses to raise its key interest rate immediately at its June meeting.

The situation is compounded by profound weakness in the national currency, which further pushes up import costs. FX market tension peaked at the end of May, when Japanese authorities were forced into large‑scale foreign‑exchange interventions to support the sapped yen. Tokyo spent a record $73.6 billion defending the currency, yet fundamental pressure on the economy persists due to high global energy prices.