Japan Wholesale Prices: Update Dec. 26

 https://mainichi.jp/english/articles/20211210/p2g/00m/0bu/034000c

Article:

TOKYO (Kyodo) -- Wholesale prices in Japan jumped 9.0 percent in November from a year earlier, marking the steepest gain on record, boosted by higher energy costs and a weak yen, Bank of Japan data showed Friday.

The prices of goods traded between companies gained for the ninth straight month, underscoring continued commodity inflation at a time of weak consumer demand after the economy took a hit from the COVID-19 pandemic.

The 9.0 percent year-on-year rise is the sharpest since comparable data became available in January 1981, following a revised 8.3 percent increase in October, the BOJ said.

Ideas:

Most likely wholesale prices will continue to increase due to increases in energy costs along with uncertainties too in supply shortages, increases in logistics costs, along whatever challenges there are related to the pandemic.

The Japanese governments use of energy reserves has not had that much of an affect on overall energy prices yet.

Weak consumer demand, as usual, will remain weak until the Japanese government can fix the structural challenges of low companies salaries or too few wages increases and fix the other main challenges of maybe too many workers on contract or part-time jobs, where they have little or no extra income to spend in the economy.

The weak yen might be a positive or benefit to exporters but its a definite negative for importers and resource poor Japan which has to import much of what it needs and uses. 

But the Japanese government has effectively said a weak yen is a positive for the economy as exports are helping the economy, when other areas such consumer spending is not that effective as this time.

Article:

Recent higher wholesale prices have yet to fully affect consumer prices in Japan where accelerating inflation is not a pressing issue, bolstering the case for the BOJ to retain its monetary easing with its 2 percent target still far off.

Resource-poor Japan is susceptible to swings in crude oil and other energy prices as it relies on imports. The yen's weakness also inflates import costs, though it is seen as a boon to exporters whose overseas profits are boosted by it.

Prices of petroleum and coal products surged 49.3 percent in November from a year ago, while those of lumber and wood products jumped 58.9 percent, reflecting higher demand as economic activity gained traction. Nonferrous metal prices gained 32.8 percent.

Ideas:

Wholesalers as with many companies are/have been reluctant to pass on their costs to the next along the supply chain and ultimately to the final consumer, as consumer have become accustomed to lower prices the past 20 years and have become price elastic, meaning they are very sensitive to prices increases.

Just look at what happened in 2014 and 2019 with the increase in the sales tax in both years. Consumers overspent both times before the sale tax when into affect and after they reduced their spending. Over time, of course, consumer begin to get use the higher prices related to the sales tax.

But that doesn't mean they always get used to increases in prices as if possible they look for substitutes of the same quality if they can find them, or even not spend at all which is sometimes the case.

Energy resources and other commodities are essential in any economy, and unfortunately companies might have to choice but the pay the prices as given, as as such become "price takers" meaning they have to take the price as is to run their business. 

While the end consumers on some products and services, might have a choice or might be able to find substitutes while businesses might not have a choice.

Article:

Japanese companies are increasingly facing pressure to pass on higher costs to consumers by raising prices even though they tend to absorb them rather than hiking prices for fear of hurting consumer demand.

Gasoline and kerosene prices are at high levels heading into winter when energy demand increases and some food companies have announced price hikes to pass on rising raw material costs.

Ideas:

Japanese companies have been reluctant to pass on their costs to consumers as they know consumers are very price conscious and they might be able to find substitute products or service, if they can.

As a result, because of the higher costs that a company has to absorb, they become a constraint on companies and maybe now are unable to increase salaries of their employees, invests in needed projects or other areas as needed.

But most likely the energy costs and other supply cost become too much they might think now they have no choice but to begin to pass on some or all of their costs to the next in line. And at the same time most likely, as a public relations campaign, apologize to those next in line about having to pass on some or all of their costs.

Many companies, after the New Year period maybe have already decided they will begin to pass some of their costs as now they have no choice. 

Perhaps just perhaps the end consumer, in Japan, might know or recognize that companies have no choice and begin to accept the fact the higher prices have will become the norm in Japan in the future.

Article:

Import prices gained 44.3 percent, the sharpest gain since January 1981, while those of exports were up 15.0 percent, both in yen terms.

BOJ Governor Haruhiko Kuroda has said the yen's recent weakness is positive for the Japanese economy, underlining its profit-boosting effect on exporters and firms with overseas subsidiaries.

Ideas:

There is another article later to comment on about inflation in Japan and globally but for now just the idea of this article.

Import prices increasing by 44.3 percent seems like a lot and maybe globally other companies are more than willing to pass on the 44.3 percent or part of it to the next in the supply chain, whether other companies and or the final consumers, but not so much in Japan.

Exports make up about 20 percent of Japan's GDP, which might not seem like a lot but its probably enough to help the economy when consumer spending, which makes up about 50 percent of Japan's GPD is less than what is needed to improve the economy.

If the Japanese government and businesses together can fix or reduce the labor structural challenges it might help improve consumer spending in the economy, such as increase in wages, an decrease in contract jobs, a increase of part-time to full-time workers, and even a increase in women into higher level positions, might help improve consumer spending in the Japanese economy.

And then there is always the ageing situation. Always a challenge and a area of concern is the possibility of increasing foreign workers in the country, whether labor for factories and farms, or professionals in companies.

Have a nice day and be safe!