Japan Inflation and Commoditiy Prices:

 Article Source: https://mainichi.jp/english/articles/20220601/p2g/00m/0bu/035000c

Article:

TOKYO (Kyodo) -- The Bank of Japan has not achieved its 2 percent inflation target yet, as low inflation is "coexisting" with temporary price gains in energy and food items in Japan, its deputy governor said Wednesday.

The absence of widespread price gains, along with low mid- to longer-term inflation expectations amid tepid wage growth, bolsters the case for the BOJ to maintain its ultralow rate policy, Deputy Governor Masazumi Wakatabe told business leaders in Okayama Prefecture, western Japan.

In shifting to tighter monetary policy, the BOJ looks set to lag far behind its global peers, including the U.S. Federal Reserve, which has begun to raise interest rates to fight soaring inflation. The Japanese central bank's dovish policy stance is a major reason behind the yen's recent weakness.

Ideas:

It can't be said that Japan has reached the Bank of Japan's target of 2 percent becasue what is happening now is not cosumer demand or increased consumer spending but instead supplier inflation due to increase raw material costs and energy cost increases.

If consumer spending and consumer demand were significant then we could say the 2 percent target rate most liklely could be reached. 

So the passing on of supplier costs along the supply chain is not the same as consumer demand most likely is going to constrained as they look to cut-back on spending and or look for substitutes becuase of supplier and companies passing on their costs.

The Bank of Japan might not have choice and not follow what the US is doing as the Japanese economy and Japanease society is much different, and any kind of rate increase might have siginficant consquenes that the Japanese economy doesn't need at this time.

Article:

Wakatabe's remarks underscore the BOJ's view that the recent bout of inflation, driven mainly by surging commodity prices due to Russia's invasion of Ukraine, will only be temporary even though Japan's core consumer price index excluding volatile fresh food items jumped 2.1 percent in April from a year earlier.

"Low inflation is currently coexisting with price increases in some items," Wakatabe said.

"Since this low inflation is connected to low wage inflation, it is necessary for the bank to continue with monetary easing to stimulate the economy and thereby realize a virtuous economic cycle where an increase in income leads to one in spending."

Ideas:

With all due respect to the BOJ the current inflation situation doesn't look to be temporary. It might not go that high but it doesn't look like its a passing situation at this time.

And yes, the key variable that seems to be causing challenges in the Japanese economy is low wage inflation. Companies seem to be reluctant to increase wages when, as reported in some articles, companies are sitting on a lot of money in the banks.

Of course the Bank of Japan has been using a strategy of a low to zero rate as a way to make the companies use their money they have in the banks or lose their money over time due to the low rates.

But the strategy doesn't seem to be working as companies don't seem to increasing the wages of their employees, either out of fear of the future or some other reasons.

So prices are increasing related to many things which puts even more constraints on consumers/employees as they are not seeing wage increases to overcome the increases in supermarket prices, other food prices, home energy costs, gasoline costs and so on.

But its a double edged sword meaning, companies have to raise costs, suppliers, so they have no room to give their employees wage increases at this time.

Article:

Contrary to Japan, prices are rising on a wide range of items and longer-term inflation expectations are also higher in the United States and Europe, Wakatabe said, adding that the underlying price trend at home needs to be carefully examined.

"Although the rate of change in the CPI reached 2 percent for April, if this lasts only about six months to a year, the price stability target of 2 percent cannot be said to have been achieved in a sustainable and stable manner," the deputy governor said.

Accelerating inflation could become a headache for Prime Minister Fumio Kishida ahead of an upper house election in July.

Ideas:

Significant inflation might be increasing in the US and Europe but for many reasons, it hasn't been significant yet in Japan. 

Yes, even a 2.1 percent increase might not be good for some income groups but its not what consumer and families are experiencing in other countries, as the inflation rates are much higher.

The reason might be, as usual, some companies are still reluctant to pass on their increased costs to those in their supply chain, instead deciding to absorbe some or all of their costs, which of course means lower profits margins, which of course measns less wage increases for their employees, which of course might mean less overall consumer spending in the Japanease economy.

The 2 percent target rate can only be measured related to an increase in consumer demand or an increase in consumer spending and not supplier inflation.

So again we have a double edged sword problem here. Companies are usually or have been very reluctant to pass on their costs to the next in the spply chain, which eventually could be the final consumer.

And they have increased supply costs and becasue their profit margins are decreasing they are unable or unwilling to increase wages because of their shrinking profits margins. 

Which then means their workers/consumers have to cotend with higher prices related to many things, which then puts constraints on the Japanese economy. 

But even if all companies passed on their increased supply costs, what does that mean for the overall economy other than higher prices everywhere.

And again the key has to be increased wages but companies are unable to increase their wages and or even though they have huge some of money in the banks, the large companies they are still not willing to increase the wages of their employees.

Article:

The government has been seeking to ease the pain felt by consumers from higher fuel costs and food prices with a relief package that includes subsidies to oil wholesalers.

The weaker yen is partly to blame for the recent surge in commodity prices as resource-scarce Japan relies heavily on imports.

Low inflation should be tackled by the BOJ persisting with monetary easing, Wakatabe said, while rising commodity prices should be addressed by non-monetary policy means.

"Possible options include fiscal policy and energy policy to reduce dependence on petroleum and natural gas," he added.

Ideas:

Most likely just one relief package is not going to solve the current challenges as maybe there should be two or even three relief packages over time.

For example, if the Japanese government gives subsidies and import oil prices continue to increase the subsidy given last month or three months ago might not be enough cover the new increases in import oil prices.

For food prices, the Japanese government maybe should give food suppler subidies too and or put price controls on their food basics to help low income groups, such as on milk, eggs, bread etc. that are basic weekly or daily needs. 

Monetary easing is still a good strategy as the intention is to use money in the economy instead of just letting it sit in banks. Get it moving through the economy and there might be some increase in consumer inflation or consumer demand inflation.

For commodity prices, price controls, subsidies and so on should be used as a way to keep supplier prices from becoming too much for consumers in the Japanease economy.

Have a nice day and be safe!