Japan Inflation:

 Article Source: https://mainichi.jp/english/articles/20221028/p2g/00m/0bu/047000c

Article:

TOKYO (Kyodo) -- Core consumer prices in Tokyo gained 3.4 percent in October from a year ago, marking the sharpest increase in over 40 years, government data showed Friday, in fresh evidence of a weaker yen magnifying the inflationary pressures caused by higher commodity prices.

The key index of consumer inflation for Tokyo excluding volatile fresh food rose for the 14th straight month, with the speed of its increase picking up from 2.8 percent in September. It has stayed above the Bank of Japan's 2 percent target for the past five months.

Ideas:

The Bank of Japan must feel the Japanese economy is too weak for key rate increases but the difference between Japan and other economies is large when it comes to the key rate.

Consumer prices increased the most in 40 years, but the Bank of Japan seems to not be interested in inflation pressures on the general public.

But at the same time it must be remembered that the Bank of Japan's 2 percent target was never related to wholesale inflation but more importantly consumer demand and consumer inflation.

Article:

Tokyo's core CPI is an indicator of what to expect in the rest of the country. Economists forecast that the nationwide figure, which topped 3 percent in September, will rise further toward year-end, challenging the BOJ's efforts to stick to its ultralow rate policy.

Excluding the effects of multiple consumption tax hikes, the last time Tokyo's core CPI jumped 3.4 percent was in June 1982, according to the Ministry of Internal Affairs and Communications.

Ideas:

Inflation in Japan is not good as it reduces consumer spending in the economy, and as consumers see even more of the same in the future they might further reduce their spending as their disposable income is reduced even more.

It's even worse for low-income groups and or fixed-income groups whose income is severely squeezed even more as inflation gets worse over time.

In 2014 with a sales tax hike from 5 to 8 percent and in 2019 from 8 to 10 percent, each time there were decreases in consumer spending after the sales tax increases. But consumes, as usual became used to the sales tax increases.

But now, as inflation continues on in Japan, consumers might not get use to the continued inflation increases and continue to reduce their spending over time.

Article:

The data was announced while Japan is seeking to mitigate the negative impact of rising prices on households and businesses, with a fresh economic package that will include 29.1 trillion yen ($199 billion) in government spending.

The BOJ, however, will unlikely budge over the need to keep interest rates at extremely low levels to support the economy, based on the view that the recent pick-up in inflation should only be transitory, despite headline inflation temporarily hitting its 2 percent target.

Ideas:

A 29.1 trillion package might not be enough as the package needs to reach as many households in need as possible. 

Of course there will be detractors who think the Japanese government is spending too much and it's debt is already too high.

But now is not the time to worry about the debt with many households are still in trouble like during the pandemic.

And yes, the BOJ most likely is not going to budge and keep the interest rates extremely low for the time being.

If inflation is only transitory please ask the average person on the street if inflation is really only transitory.

Article:

Food prices in Tokyo jumped 5.9 percent, in a blow to consumers when wage growth remains tepid in Japan.

Energy prices also surged 24.2 percent, with electricity and city gas bills up over 26.9 percent and 29.3 percent, respectively. Gasoline and kerosene prices also rose but at a relatively slower pace, due to government subsidies given to wholesalers on condition of trying to mitigate higher costs for consumers. As Japan heads into the winter season however, energy demand is expected to rise further.

The gain in core CPI also came as the year-on-year impact of sharply lower mobile communication fees dissipated further.

Ideas:

If food prices are actually increasing what does that mean for either supermarkets or restaurants in Tokyo. Are consumers going to buy less at supermarkets. Are they going to eat less at restaurants.

Of course the real challenge is wage growth and many companies can't or refuse to increase wages to help their employees ad their profit margins are squeezed due to increased energy and material costs.

An increase of26.9 percent doesn't help families with their disposable income and the same with gas bills. When disposable incomes are reduced that means less spending in other areas in the economy, which Japan desperately needs at time time.

Government subsidies can only to so much and its a short-term fix. Everyone knows that wage growth is what is really needed for the Japanese economy but companies don't or can't find ways to increase salaries that time time.

Have a nice day and be safe!