At 8:50 a.m. on 2024/3/12, new information on the corporate goods price index for February 2024 was announced. The story about how PPI affects interest rate policies, and whether Japan will review its ongoing negative interest rate policy is attracting attention.
What is PPI
PPI (Producer Price Index) is an index that looks at how prices change when factories ship products. With this, fluctuations in wholesale prices of raw materials and products are understood, and it is used as a sign whether prices will rise or fall in the future. As PPI rises, it is conceivable that future consumer prices may also rise, so central banks look at this and use it to decide monetary policy.
(1) Inflation expectations and long-term interest rates
Long-term interest rates are yields on government bonds issued by the government for a long period of time. This is driven by the central bank's interest rate policy, such as inflation expectations or economic growth.
When PPI rises and inflation is expected, everyone's demand for yield on bonds will increase, and long-term interest rates may also rise.
(2) PPI Index and Deposit Interest Rates
Deposit interest rates are policy interest rates and markets determined by the central bank...