Japan Wholesale Prices:

 Article Source:  https://mainichi.jp/english/articles/20220712/p2g/00m/0bu/031000c

Article:

TOKYO (Kyodo) -- Wholesale prices in Japan jumped 9.2 percent in June from a year earlier after import prices surged at the fastest pace on record due to the sharp drop in the yen, Bank of Japan data showed Tuesday.

Japan has seen the prices of goods traded between companies rising by 9 percent or more for the past six months, giving evidence that inflationary pressures are persisting as Russia's war in Ukraine sends energy, raw material and food prices sharply higher.

Wholesale prices marked the 16th straight month of year-on-year growth. The yen's recent depreciation to levels unseen in about two decades against the U.S. dollar also inflated import prices to the detriment of resource-poor Japan.

Ideas:

Maybe now Japanease companies recognize that they can no longer just absorb increased import costs, raw material costs, and energy cost increases and they have to begin to pass on some or all of thier cost increases to the next in the supply chain.

For a very long time Japanease companies have been reluctant to pass on costs to cost senstive companies and consumers, but that was a long time ago and now Japan and Japanese companies maybe have begun to understand that even in Japan costs and inflation is now a part of the economy.

Of course the yen and its challenges have made things worse for importers. But at the same time it might still be a positive for exporters even though their costs might be increasing too.

Article:

Import prices in yen terms soared 46.3 percent, the biggest gain since comparable data became available in 1981. The figure compares with a 19.1 percent gain in export prices, the BOJ said.

Prices or petroleum and coal products jumped 22.2 percent, while those of iron and steel gained 26.7 percent. Wood and lumper prices advanced 43.3 percent, though the pace of increase slowed from 57.2 percent in May, reflecting tight demand as economic activity picks up.

Electricity, city gas and water prices, which track energy prices such as crude oil and natural gas with a lag, rose 28.2 percent.

Ideas:

All of this just didn't happen because of the Ukraine situation, as the inflation situation has been building since the start of the pandemic.

Large companies are probably are not affected as much as small and medium sized companies who don't have the resources needed to overcome the inflation situation or the weak yen situation.

At at the same time there are of course many economic/income groups in Japanese society that might be feeling the effects of the inflation challenges, especially fixed income and low income groups.

The Japanese government plan of giving 50,000 yen subisidies might be a good idea except how long does 50,000 yen last when inflation keeps increasing.

Article:

The rise in energy prices was limited by government subsidies to oil wholesalers to bring down the prices of gasoline and kerosene among other fuels. But the impact of higher energy prices overseas was still felt as Japan relies heavily on foreign energy to satisfy domestic needs.

"We have seen moves to pass on higher steel and energy prices in the machinery sector and raw material costs in the food and beverage industry," a BOJ official said.

"There appear to be many companies willing to raise prices further when they review their prices, such as in July and October," the official added.

Ideas:

The oil subsidies only work if the subsidies keep pace with increase in oil prices. For example an one time subsidy is good but then as oil prices continue to increase there needs to be even more subsidies.

Some companies and or some industries or sectors might be able to absorb the price increases but there might be some companies and sectors who are unable to keep pace with the price increase and have no choice but to pass on their cost increases to the next in the supply chain. 

Yes, there are now probably many more companies either willing or feel they have no choice to pass on their costs to the next in supply chain when maybe just two years ago, before the pandemic started they wouldn't have even considered it.

Article:

Japanese companies -- both manufacturers and nonmanufacturers alike -- are feeling the impact of higher purchase prices.

According to the BOJ's Tankan business survey released earlier in the month, the reading for input costs among major manufacturers stood at the highest level in about four decades.

Japanese companies have been passing on higher costs by raising retail prices, with consumers increasingly struggling with the rising cost of living, a key issue in Sunday's House of Councillors election in which the ruling coalition clinched a sweeping victory.

The core consumer price index excluding volatile fresh food items rose 2.1 percent in April and May, a level above the BOJ's target of 2 percent.

Ideas:

Maybe not since the roaring 80's has Japan seen this much inflation and maybe some companies or sectors just don't know what to do and or just don't have the strategies to overcome the inflation challenges.

So the only alternative for them now is to pass on the costs to whomever is next in the supply chain including the final consumer.

And of course maybe many consumers haven't seen price increases or inflation like this in Japan, if ever.

So the Japanease consumer, usually more frugal than the average western consumer now, unfortunately, has to learn to be even more frugal in what they buy,

And it must be remembered the BOJ's 2.0 inflation goal was never about supply inflation, or every cost inflation, or raw material cost inflation but the goal has always been to try and increase consumer demand and consumer spending which lags behind other advanced economies.

Article:

Still, the central bank has cast doubt on the sustainability of inflation largely driven by higher energy and commodity prices, committing itself to powerful monetary easing.

The yen has fallen as the BOJ has stayed the course while the U.S. Federal Reserve has already started raising rates, facing the delicate balancing act of tamping down inflation without hurting economic growth. The European Central Bank is also expected to follow suit.

Ideas:

Energy prices and commodity prices can somtimes be very volatile meaning they rise and fall quickly. But the trend over the past two years as been very much the opposite, they continue to increase.

So the reason why the BOJ has been reluctant to intervene as the US Federal Reserve and the EU Central Bank has done a lot recently.

And the BOJ might think, and maybe rightly so, that the Japanese economy is not the same organism as the other advanced economies and feel an increase in the key rate might do more harm than good to the Japanese economy.

The BOJ is now under increased pressure to intervene in the yen market as the US keeps increasing its rate the difference between the yen and the dollar just makes import prices more expensive for Japanese companies.

But at the same time it makes exporter prices more expensive which means Japanese exporter might be able to bring back to Japan more profits.

But the challengs there is, oversease customers might begin to also feel an increase in prices, related to Japanese products as to much and might decide to buy other products.

Have a nice day and be safe!