Japan’s CSPI shows business services inflation in Asia is expected to reach 3.2%, exceeding the Bank of Japan’s target
by VT Markets
/
Aug 25, 2025
The Asian economic calendar for August 26, 2025, is light on events. The main highlight will be Japan’s Corporate Services Price Index (CSPI), also known as the services PPI, which offers insights into inflation in the business services sector.
This indicator, like many others in Japan, consistently exceeds the Bank of Japan’s 2% target. The market expects a 3.2% increase in this report, which aligns with current inflation trends in the country.
Japan’s Inflation Challenge
We are closely watching Japan’s Corporate Service Price Index coming out tomorrow. If it shows a high value like the anticipated 3.2%, it will put more pressure on the Bank of Japan to take decisive action. This isn’t just one figure; it reflects a pattern of stubborn inflation we’ve seen all year, far above the central bank’s 2% target.
This ongoing inflation challenges the Bank of Japan’s cautious approach to raising interest rates. The policy rate has remained at just 0.25% since spring 2025, making this level less sustainable given that service inflation has stayed above 2.5% since early 2024. We believe that the market is underestimating the chances of another rate hike before the year’s end.
For currency traders, this indicates a possible shift in the yen’s long-standing weakness. After being stuck in a range of 158-162 against the dollar for much of the summer, the risk of a sharp drop in USD/JPY is increasing. We find it appealing to buy near-term JPY calls, as implied volatility appears too low for a central bank that may need to act.
Market Implications
Another area to monitor is equity derivatives, as a more hawkish stance could negatively impact stocks. The Nikkei 225 is up nearly 15% year-to-date and is near record highs, making the market seem complacent about risks in monetary policy. Purchasing protective puts on the index for the fourth quarter might be a wise hedge.
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by VT Markets
Aug 25, 2025
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