BOJ: Price HIkes:

 Article Source:  https://mainichi.jp/english/articles/20220209/p2g/00m/0bu/039000c

Article:

TOKYO (Kyodo) -- A Bank of Japan board member said Wednesday a recent push by companies to pass on higher costs to consumers may gain greater traction than expected, with price hikes spreading more widely in Japan.

BOJ Policy Board member Toyoaki Nakamura told a virtual meeting of business leaders in Yamanashi Prefecture, central Japan, that the country is expected to see core consumer inflation accelerate toward the central bank's 2 percent target, helped by a "moderate" price pass-through.

Still, he also acknowledged uncertainty remains over corporate price-setting behavior, warning higher raw material costs could eat into corporate profits if companies cannot go ahead with price hikes.

Ideas:

Most likely companies will feel they no longer have a choice and will have to pass on all or part of their supply cost increases. For years many Japanease companies have been reluctant to pass on any of their costs to the next in line, as Japanese consumers were/are very price senstive.

If the price increases are mild or moderate and or were just somewhat temporary companies might feel they gain wait and or ride-out the temporary supply cost increases. But it appears now that supply and energy cost increases are not a short-term or temporary situation but have become somewhat of a permanent situation.

As a result maybe companies can no longer play the waiting game, meaning they will try to absorb the price increases and now have to pass on their costs to whomever is next in line, being other companies or the final consumer.

Inflation might not reach the 2 percent target that the BOJ has been targeting for a while, but even if it just gets t 1 percent or even 1.5 percent, that might be enough for some or many consumers to feel the side-effects of inflation.

If companies don't move forward with some kind of push to pass on their costs, they might not have any room to increase salaries for their employees that Prime Minister Kishida has been pushing to get the economy moving in the right direction.

Article:

"There is a possibility that companies will pass on costs (to consumers) more than previously expected," Nakamura said. "A proactive stance by companies on price-setting is an important factor for Japan to shift to a new growth path and achieve our price stability target."

Japanese companies are known to be reluctant to raise retail prices for fear of hurting consumer demand. But surging raw material costs, which have sent wholesale prices to their highest levels in four decades, have prompted an increasing number of firms to pass them on to consumers.

The core consumer price index excluding volatile fresh food items rose 0.5 percent from a year earlier in December.

Ideas:

Even though companies have been reluctant to pass on their costs, for fear of hurting consumer demand, they might not have a choice, as supply costs and energy costs are now at the four decade high.

They might not have a choice if their as supply and energy costs cut into their profit margins and now have no room for salary increases, maybe no room for future investments, and or any other activity they might think as being important.

So if they don't company employees now have to wait another year without a salary increase, which means as their home costs increase they have less and less disposable income too to do what they want or need just like companies do.

So its a re-occuring situation in the Japanese economy where consumers are squezzed by increases in super-market prices, gasoline prices, home energy prices and then too without any increase in their salaries.

And companies too feeling the pinch of supply costs and energy costs increasing and have no extra room to increase salaries and other activities.

Article:

"We will continue with our powerful monetary easing to attain the (inflation) target," Nakamura said.

The rapid spread of the Omicron strain of the coronavirus is raising uncertainty over the economy and putting downward pressure on private consumption in Japan. Nakamura said he is paying attention to the spread of Omicron in China, the world's second-largest economy, which could lead to protracted global supply constraints and inflationary pressures.

Ideas:

The Bank of Japan might have no choice but the continue with its moneary easing at the present time. 

First it was the Abe administration and the Bank of Japan using the easing monetary strategy to get the economy moving, and then of course it was and still is the panedemic situation with many businesses still not where they should be, and now its the continour surge in energy and supply prices that the Bank of Japan needs to manage. 

Private consumer or consumer spending has always been a major challenge for the Bank of Japan and now with the pandemic and the increase in costs in many areas of the Japanese economy and society, its too soon for the Bank of Japan to back on its easing policy.

While other central banks might be doing the opposite, its not a good idea for the Bank of Japan to follow what the EU or the Federal Reserve is doing, or will do and each country has its own unique economic situations and circumstances.

And yes, the situation in China could easily spill over into Japan, South Korea, and other countries here in the near future.

Have a nice day and be safe!