Japan Wholesale Prices:

 Article Source: https://mainichi.jp/english/articles/20220610/p2g/00m/0bu/023000c

Article:

TOKYO (Kyodo) -- Wholesale price inflation accelerated in May to 9.1 percent from a year earlier, reflecting higher raw material prices and sharp declines in the yen that boosted import costs at a record pace, Bank of Japan data showed Friday.

The prices of goods traded between companies marked the 15th straight month of increase, raising the likelihood of higher consumer prices that could hurt private consumption at a time when the economy has yet to fully recover from its pandemic malaise.

The 9.1 percent gain in wholesale prices follows a revised 9.8 percent rise in April, the fastest pace on record.

Ideas:

A combination of raw material price increases and the weak yen are definite challenges for many wholesalers. 

But the real question is how is this going to affect consumers as many businesses in Japan up to now have been reluctant to pass on their increased costs to the next in the supply chain which might be the consumer.

But wholesalers or other businesses in previous years didn't see the double challenges of both raw material cost increases and the unusually weak yen.

Maybe before they saw one or the other but never like this or this extreme combination.

So because of this extreme combination they might now feel they have no choice but to pass on their costs, all or some to the consumers.

Business to business passing on of costs which of course might be very common but it hasn't been so common passing on to consumers in recent years or even decades.

Article:

The BOJ's commitment to maintaining its ultralow rate policy has prompted the yen to fall sharply against the dollar and the euro as the U.S. Federal Reserve and the European Central Bank move toward tighter policy to fight surging inflation.

Import prices jumped a record 43.3 percent from a year earlier, as a weak yen means higher costs for resource-poor Japan which relies heavily on energy imports, while export prices rose 16.7 percent, both in yen terms.

The BOJ believes commodity inflation will not last long but higher costs are a headache for companies facing pressure to secure profits by raising retail prices while not scaring off consumers.

Ideas:

The BOJ, seems to think, that the Japenese economy is not like the US or the EU and they might be correct. 

For example if they increase rates that means rates in many different ares are going to increase which could have an affect on businesses that need loans, families that need loans.

And then there is existing loans and those rates will be even higher which means those who have existing loans now have to pay even more.

The challenge then becomes, with the increase in loans there might be less available income to spend in the Japanese economy, as the major challenge in the Japanese economy is consumer spending and even business spending.

As the the Japanese economy is just beginning to come out of the pandemic situation maybe the BOJ feels rate increases might be too much for a fragile economy and might cause more problems and decrease spending even more.

So import prices increased 43.3 percent and export prices increased 16.7 percent. That of course is a large difference but most likely the volume of exports was more than the volume of imports into Japan, so the Japan currency account might still be somewhat OK.

But even it the Japan currency account decreased the difference most likely is not that much compared to many decades of having a trade surplus which of course brings money into the currency account.

Article:

"Nearly 40 percent of the rise in wholesale inflation is due to the weak yen, and its impact is expected to become larger," said Toru Suehiro, a senior economist at Daiwa Securities Co.

"If the yen depreciates further to 140 against the dollar, the weak yen impact will surpass 50 percent and the government and the BOJ would have to change its message that the recent bout of inflation is mainly because of higher energy prices," Suehiro added.

The dollar was trading in the lower 134 yen range on Friday.

Ideas:

Japanese businesses are probably used to a weak yean alone and an increase in costs alone but probably not used to the extreme changes of both cost increases and the weak yen together like this. 

Even if the weak yen impact reaches 50 percent most likely not much is going to be done at this time, as the BOJ still thinks its current policy is the correct approach for the Japanese economy.

And they again might be correct as an increase in rates might bring the yen back in line with other currencies but then there might be other challenges such as increased rates for businesses and consumers and that might be an even bigger problem that the BOJ is trying to avoid at this time.

So whatever the BOJ does is going to have some positives and some negatives, as usual with any rate increase or decrease, and central banks have to weigh both and try to do what is best for the economy.

Article:

Russia's invasion of Ukraine has sent crude oil and other raw material prices higher amid supply concerns.

Prices of petroleum and coal products gained 21.6 percent in May, the BOJ data showed. Iron and steel rose 29.8 percent, and lumber and wood products soared 56.1 percent. Electricity, gas and water bills gained 28.6 percent.

"The big picture that higher commodity prices are accelerating wholesale inflation has not changed," a BOJ official said.

Ideas:

Before the Ukraine situation, because of the pandemic, there might have already been supply challenges or supply shortages and now the Ukraine situation has made it worse, which has given global market suppliers more reasons to increase prices.

So the BOJ has not wrong in thinking commodity prices are a major challenge for the Japanese economy, but the weak yen doesn't help as it causes import prices even higher.

But a weak yen helps exporters and most likely Japanese exporters might have more market and or political power which keeps the BOJ from increasing rates which means exporters would get less in the global marketplace in the future.

So the BOJ know the weak yen is not helping everyone but again its has to balance both the positives and negatives of its policies for the good of the overall economy.

Article:

In a country long known for deflation, rising prices have become a sensitive issue ahead of the House of Councillors election in July, as the nation has yet to see robust wage growth that would ease the pain felt by consumers.

BOJ chief Haruhiko Kuroda on Wednesday retracted his remark that consumers had become "tolerant" of rising prices, after a backlash from opposition lawmakers and consumers.

According to a recent survey by research firm Teikoku Databank, the cost pass-through rate among Japanese companies was at 44.3 percent. It means that a business charges an additional 44.3 yen when costs rise by 100 yen.

Around 15 percent of the firms covered in the survey said they have not been able to pass on higher costs to consumers at all.

Ideas:

Deflation has long been the norm in the Japanese economy and consumer have gotten used to lower prices compared to consumers in other countries. 

Prime Minister Kishida, way back in December, asked businesses to increase wages by at least 3 percent. but now as inflation has emerged in the Japanese economy its highly unlikely that many businsses are going to follow his suggestion as energy prices and raw material prices are surging, and their profit margins are shrinking at the same time.

Unfortunatley whatever Kuroda says there are going to be those who don't like it. So its a no-win situation for him in many situations.

So companies are maybe passing 44. 3 percent of their costs to the next in the supply chain or even the consumer, which is probably the level they feel is the best they can do as if they tried to pass on 100 percent it would be too much and they would then begin to lose too much in sales or revenues.

Just like retail stores and restaurants and so on they try to estimate how much they can pass on and estimate what the affect will be related to cosumer reactions or responses to the increase in prices. 

So 15 percent felt they were unable to pass on their costs. Most likely these businesses are in very senstive industries or very elastic price industries where any price increae might be seen as negatives by customers or whomever.

Have a nice day and be safe!