No Inflation Worries in Japan: Updated Jan. 2, 2022

 Article Source:  https://mainichi.jp/english/articles/20211218/p2g/00m/0bu/012000c

Article:

(AP) -- Surging prices are haunting consumers and confounding economic planners in the U.S. and other countries, but not in Japan, where sparking inflation has proven an elusive goal.

While the Federal Reserve and most other central banks are shifting into inflation-fighting mode, the Bank of Japan on Friday said it would scale back corporate bond purchases to pre-pandemic levels. But it will continue pumping tens of billions of dollars into the economy in hopes of eventually attaining its elusive 2% inflation target and getting the economy to grow faster.

With outbreaks of the omicron variant of coronavirus looming in many parts of the world, "high uncertainties" persist, it said.

Ideas:

Its interesing, if you look carefully at the entire article, it seems that prices are actually rising but not enough to affect overall inflation in the Japanease economy.

And many businesses are still very reluctant to pass on the increase of their costs to the next in the chain which could be the final consumer.

But eventually, if the price increases continue to surge companies in Japan many have to decide just how much can they accept in increaes in prices before they decide enough is enough, we have to pass some of the increases onto the next in the chain.

But its still very good that the BOJ is continuing to pump billions of dollars into the economy as there are still many businesses and families who are still suffering from the pandemic.

And of course to try and reach the elusive goal of 2 percent inflation, which they have been trying to reach for about 7 years, if not longer.

The idea of getting the Japanese economy to grow faster might be an unrealistsic goal, as it takes more and more resources to grow an advanced economy. 

Japan may have reached the point where 1 percent growth is all that the BOJ can expect for growth. But even 1 percent growth, is still a lot of economic activity in terms of yen or even dollars.

Article:

The chances of hitting that target anytime soon remain "slim," Marcel Thieliant of Capital Economics said in a report. "The upshot is that the Bank of Japan will remain among the few central banks that won't tighten policy for the foreseeable future."

Inflation was 0.1% in October. Excluding volatile food and energy prices, it was negative. The BOJ is forecasting 0% inflation for the fiscal year that ends in March.

By contrast, U.S. consumer prices grew 6.2% in October over the previous 12 months, the most in three decades.

During the pandemic, the Federal Reserve and other central banks unleashed a barrage of monetary stimulus similar to Japan's, taking interest rates to record lows in some cases. Now that the U.S. and other economies are on the mend and prices are surging, the Federal Reserve and other central banks are moving to wind that down without snuffing out economic recoveries.

Ideas:

Its interesting again, to use the same phrase, that the Japanese economy seems so disconnected in some aspects from other advanced economies such as in inflation, as other major advanced economies are experince large increases in inflation, while Japan doesn't seem to feel it.

But if you were to ask the average person or the average family you would probably get a different response. They would probably say we see price increases in the supermarket, at restaurants, at the gas stations, and in our home energy costs.

So, if this is really what is happening, why are these areas enough to show that inflation is increasing in Japan. Perhaps there is some kind of disconnect to what is happpening in the real world of consumers and families and what is being reported as to what real inflation is.

Just perhaps there need to be different inflation indicators. One showing the real world affects on families and then the conventional textbook inflation of economics. Of course there already is as volatile food and energy prices are measures separately from other areas.

How many companies are planning to pass on some or all of their costs after the New Year, will be interesting. 

And for example as the Japanese yen remains weak compared to the US dollar, meaning Japanese importers have to pay more and more for whatever they bring into Japan, so how much longer, if they haven't already, have had to pass some or all of their increased cost to whomever is next in the chain. Just how much can the importers aborb in increased costs before they have no choice but to begin to pass the costs on.

Article:

With U.S. inflation nearing a 40-year high, Fed policymakers on Wednesday announced plans to shrink the central bank's monthly bond purchases twice as fast as earlier planned. That puts it on a path to begin raising interest rates within the first half of 2022.

On Thursday, the Bank of England became the first central bank among leading economies to raise interest rates to fight inflation that rose to 5.1% in the year to November.

Some Asian central banks already had begun to raise interest rates. New Zealand's has raised its benchmark interest rate in October and then in November, from a record low 0.25% now to 0.75%.

Ideas:

The idea of increasing interest rates is an incentive which might force businesses and whomever to not borrow from banks and or to control the supply of money in the economy which means reduced economic activity in an economic to reduce inflation.

As to how long it takes or if it even works is another story for later. And there are always positives and negatives to any economic action. And increase in rates might be a benefit for some banks and might be a negative for some banks.

And decrease in the supply of money in the economy might be a positive for some and a negative for some in the economy, as an economy is very complicated, not every business or every family benefits exactly the same. 

Its an interesting research study as to how Japan is able keep its inflation so low while other advanced economies are having some serious inflation challenges.

Article:

Japan's economy began slowing in the early 1990s with the collapse of a financial bubble and has never really regained momentum. Companies are wary of hiring, raising salaries or investing, given the bleak growth outlook for a country whose quickly aging population is shrinking. Combatting deflation, or falling prices, has been the priority.

For nearly a decade, the Bank of Japan has been buying massive amounts of government bonds and other assets to keep borrowing costs in the world's third-largest economy near zero and, theoretically, entice consumers and companies to spend more to beat future price increases. The benchmark interest rate has been at minus 0.1% for years.

Rents are still roughly where they were 30 years ago and prices for most consumer goods have risen, but not by as much as elsewhere. With wages flat or falling and taxes rising, cautious shoppers tended to just tighten their belts.

Ideas:

Perhaps the Japanese economy has moved beyond the growth stage such as with companies and moved into the mature stage meaning the Japanese economy will never see the growth it had in the 80's. 

Perhaps all Japan can expect is growth at or around 1 percent for the unforseable future,if even that?

While its not popular to talk about it, perhaps its time for Japan to realize its needs an infusion of immigrants to re-vitalize its economy. Or has been suggested, become a permanent mature economy, which Switzerland at one time was described as becoming, it not there now.

Or just perhaps Japan needs a completely different way at looking at inflation and economic growth separately from the rest of advanced economies.

Perhaps the present standard or what inflation is just doesn't fit the reality of what is happening in Japan compared to the rest of the the world. 

Article:

"Japan's inflation remains muted," says Sayuri Shirai, a professor at Tokyo's Keio University and former member of the Bank of Japan's policy board.

Japanese retailers, restaurants and other businesses have been loathe to pass higher costs onto their price-sensitive consumers. Aeon, one of Japan's biggest retail conglomerates recently announced a "price freeze" until the year's end "as a way of supporting our customers at a time when prices for daily necessities are rising."

But even Japan, which imports much of what it consumes, is not entirely immune to the surge in prices across the globe, and some of the higher costs being paid by consumers elsewhere may just be slow to catch up.

Ideas:

Some articles througout the year have talked about how restaurants are actually increasing prices on some of their menu offerings but not all items. And some article thoughout the year have talked about how supermarket prices have been increasing.

And other articles have talked about the increase in energy prices gas prices and so on.

So its not like prices aren't increasing in Japan. But maybe these areas alone are not enough to see a across the board increase in inflation.

As the rest of the article mentions related price increase, maybe 2022, is the year that Japan's breakouts of of its reluctance to increase prices and consumers like in 2014 and 2019 increases in the sales tax are just going to have to get used to the idea that Japanese companies are finally going to pass on some or all of their costs to the next in the chaine.

Article:

Wholesale inflation hit its highest level in 40 years in October, at 8%. Manufacturers and farmers are feeling the squeeze of rising costs, especially for fuel.

Costs for gasoline, and other fuels, electricity and gas rates have been creeping upward. Some food brands have announced plans to raise prices next year, to make up for the higher costs of imported wheat, potatoes and other commodities.

Car prices have nudged higher as automakers cut output due to shortages of components, Tom Learmouth of Capital Economics said in a report. He forecast that inflation will top 1.3% next year, but then fall back.

Ideas:

Perhaps the uniqness of the Japanese society and Japanease culture and a Japanese company's relationship with its customers is a reason that some or many companies are reluctant to pass on their increased costs to customers or even other companies as they prefer to just aborb the costs instead of causing negative situations with their customers or business partners.

But again maybe in 2022, we might begin to see some changes if prices continue to increase like they are globally. Nothing stays the same so maybe there will be a pardyne shift in the thinking of businesses in 2022 as to what they need to do to be profitable in the future, and not just continue to absorb their costs as they've done for many years.

Wholesale inflation at 8 percent is high enough that some of the prices that wholsalers are feeling should maybe be passed on to others in the chain. Otherwise, the employees of wholesalers most likely are not going to see any salary increases and or wholesale companies are not going to proceed with any other projects as the 8 percent increase in prices is crowding out any other activities that the companies want to do or need to do.

Article:

And then there is "stealth inflation," known elsewhere in the world as shrinkflation, as manufacturers plump their profit margins by selling less of the same products -- candy bars, boxed lunches, tissues and rice balls, for example -- for the same prices, often claiming that smaller portions are more suitable and appreciated by Japan's aging consumers.

Shirai also expects inflation to pick up somewhat, especially when the impact of reduced mobile phone fees this year disappears by next April.

"But it is difficult to see 2% inflation," said Shirai. "Japan's consumption remains weak and firms are not able to pass those costs fully on retail prices."

Ideas:

The reduction of the size of products is a business strategy that has been going on for year. A company can try to say any reason they want, but they reduce the offering of a product but maybe keep the prices the same.

Meaning they use less resources to make or offer an product but keep the price the same, which benefits the company but maybe doesn't benefit all customers.

The reduction of mobile phone fees might help some consumers but with an increase in other areas just as home energy prices there might not be much of a benefit overall to the average consumer.

And yes the idea of 2 percent inflation is a long way off or maybe not a very realistic goal for the Japanese economy.

And just what does it mean when the phrase "consumption remains weak" Does that mean Japanese consumer spending it not where it should be? Does it mean Japanese consumer spending is not even near its potential? 

If so, just where should it be? And what is the potential of Japanese consumer spending now and in the future?

Just some brainstroming of ideas as I was watching the Hakone ekiden while writing this.

Have a nice day and be safe!