Japan Wholesale Prices:

 Article Source:   https://mainichi.jp/english/articles/20220412/p2g/00m/0bu/029000c

Article:

TOKYO (Kyodo) -- Japan's wholesale prices jumped 7.3 percent in the year to

 March 2022 from a year earlier, the fastest pace on record, driven by surging crude

 oil and commodity prices amid an economic recovery from the COVID-19

 pandemic and Russia's invasion of Ukraine, Bank of Japan data showed Tuesday.

Amplified by a weak yen, the record rise since comparable data became available in 1981 came after a 1.4 percent fall in fiscal 2020. It highlighted the strong impact of fluctuations in commodity prices on Japan, a major energy importer.

The depreciation of the yen boosted import prices for Japan by 32.7 percent from a year earlier. The figure compared with a 12.3 percent rise in export prices. Both numbers are in yen terms.

Ideas:

Most likely wholesale prices are will continue to rise in the future and there doesn't seem to be any letup in the increase in commodity prices.

Of course the weak yen is making it worse as prices are now even higher, which makes it even more challenging for wholesale companies.

So what exactly is meant, in this situation with the phrase fluctuations? Usually fluctuations might mean both increases and decreases, but now it seems like only increases which really isn't a flucuations.

Large comanies are able to handle any fluctuation or in this case large increases in prices as they have to resources, usually, to absorb the price increases for a while.

While smaller compnies maybe don't have the resources needed to absorb the increased costs and most likely will have to pass on their cost part or fully to the next in supply chain.

Article:

In March alone, wholesale prices, or the price of goods traded between companies, rose 9.5 percent, marking the second fastest pace on record after a revised 9.7 percent gain in February. They were up for the 13th straight month, the BOJ data showed.

Surging crude oil and commodity prices, accelerated by supply concerns following the Russian aggression since late February, have maintained the upward pressure on prices.

Companies have been passing on the increased costs to consumers but they face a difficult balancing act in ensuring their profitability without hurting consumer demand.

Ideas:

Companies have a puzzle to solve in just how much of their increased costs should they pass on to other in the supply chain.

If they pass on too much or all of their increased costs they risk losing some or a lot of the demand for their products.

If they don't pass on enough they risk their profits margins will continue to shrink thus they won't be able to maintain their profitability, increase salaries for their employees, or develop new investments or projects as needed for the future.

For the small companies its a major problem but again maybe for the lareger companies they can absorb some or all of their costs and not have to be concerned too much about having to pass on their costs to those in their supply chain.

Article:

With its powerful monetary easing helping to weaken the yen, the BOJ has come under growing pressure to convince corporate management and consumers of the need to leave its policy unchanged while its U.S. and European peers are moving toward policy normalization, a factor making the yen weaker. The Japanese currency has slipped to a nearly seven-year low against the U.S. dollar.

Prices of many raw materials surged in fiscal 2021 when economic activity gradually recovered from the initial shock of the COVID-19 pandemic and commodity markets rebounded.

Petroleum and coal product prices soared 38.3 percent, lumber and wood products gained 44.0 percent. Nonferrous metals rose 30.5 percent. Scrap prices advanced 58.6 percent.

Ideas:

Japan, the EU and the US economies are not the same and don't have the exact same characteristics and as such don't have the same needs.

What might work in the US might not work in Japan. Japan's Q1 GDP was only -0.1 percent compared to the US which was above 2 percent. 

Economies that are stronger or have a somewhat normal economic GDP growth might be able to absorb the negatives that a key interest rate brings to an economy.

But the Japanease economy which only a -0.1 percent growth is not strong enough to absorb any negatives of a rate increase.

Such as interest rate increases in the housing market, in the buying of new homes, the increase in the rate related to those who are paying for a home now, the increase in the rate for businesses who need loans to offset the increases in energy and material costs, and the increase in the rate for families who need loans to survive, and the increase in rates related those who have a lot of debt.

Not to mentione anything financial beyond the above could be a major burden on any economy that is not already strong enough to handle and absorb challenges related to a key interest rate increase.

Unfortunately a weak yen is just what the Japanease economy has to ride through as both the US and the EU increase their rates.

Article:

Despite the surge in wholesale prices, consumer inflation has not accelerated at a similar pace. BOJ Governor Haruhiko Kuroda has repeatedly expressed doubt about the sustainability of commodity inflation.

Higher raw material costs have already cooled sentiment among major Japanese companies ahead of the upper house election this summer, a key test for Prime Minister Fumio Kishida, with uncertainty looming over the war in Ukraine.

In March, beverage and food prices rose 3.8 percent from a year earlier, marking the sharpest gain in over a decade.

Ideas:

Consumer inflation, which is what the BOJ wants to see, and not supplier inflation, has not reached the same level yet, as most likely companies know only too well that Japanease consumers are very price conscious after 20 to 30 years of deflation and or have gotten used to the lower prices.

Unfortunately the higher commodity prices might be enough of a reason for companies not to follow Prime Minister's suggestion of increasing salaries by at least 3 percent in the future, as their profit margins maybe now have become too thin or they keep getting thinner as prices continue to increase.

Maybe its time, if possible, that Japanese consumers start to get used to some other prices in the economy. But the problem is there might be many who live on smaller incomes and really can't afford the higher prices related to everyday items that might need each day or each week to live.

Article:

Prices for a wide range of products rose, from petroleum and coal, and lumber and wood products to scrap, partly blamed on Russia's invasion of Ukraine.

Import prices advanced 33.4 percent while export prices increased 13.1 percent from a year earlier.

Ideas:

An increase in import prices of 33.4 percent and an increase in exports prices of 13.1 percent suggests in terms of value there is/was a trade deficit related to Japan's current account balance. 

Traditionally Japan has always maintained a trade surplus as exports have always been one of the important economic drivers of the Japanese economy, especially related to Japanese cars.

But now with the continued semiconductor chip shortage affecting the Japanese auto industry, exports might not be as strong as they were before the pandemic.

So there are multiple challenges for the Japanese economy to overcome and again its not the right time for the BOJ to increase the key rate like the US and the EU.

The BOJ is correct in mainting its present strategy at this time.

Have a nice day and be safe!