Japan's corporate service inflation steady, BOJ focusing on Oct data

By Leika Kihara

TOKYO (Reuters) -A leading indicator of Japan's service-sector inflation held steady at 2.7% in August, data showed on Wednesday, underscoring the central bank's view that rising wages are prodding more firms to pass on higher labour costs through price hikes.

Service-sector inflation is being closely watched by the Bank of Japan for clues on whether demand-driven price gains are broadening enough to justify raising interest rates further.

The August year-on-year gain in the services producer price index, which measures the price companies charge each other for services, matched a revised 2.7% gain in July, BOJ data showed.

The increase was driven by price hikes in sectors sensitive to rising wages such as temporary work agencies and car repair services, the data showed.

BOJ Governor Kazuo Ueda has said he will pay strong attention to service inflation data for October, when Japanese companies typically make biannual revisions to prices for goods and services.

"While there are some elements we can estimate in advance, we need to look at actual data to confirm" whether wage-driven rises in service prices would broaden in October, he told a news conference on Wednesday.

The BOJ's services producer price index for October is due out on Nov. 26, while consumer inflation data for the month is set for release on Nov. 22. Waiting for both data to come out would mean the BOJ is highly likely to forgo raising interest rates at its next policy meeting on Oct. 30-31.

The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view Japan was making steady progress towards durably achieving its 2% inflation target.

Ueda has said the BOJ will keep raising rates if inflation remains on track to stably hit 2% as it projects, though he stressed the bank will spend time gauging how global economic uncertainties affect Japan's fragile recovery.

Consumer inflation data showed general services, or the price consumers pay for services, rose 2.0% in August from a year earlier after a 1.8% gain in July.

(Reporting by Leika Kihara; Editing by Muralikumar Anantharaman and Jamie Freed)