Japan Wholesale Inflation:

 Article Source: https://mainichi.jp/english/articles/20230116/p2g/00m/0bu/008000c

Article:

TOKYO (Kyodo) -- Wholesale prices in Japan jumped a record 9.7 percent in 2022 from a year ago after December became another month of double-digit growth, as higher import costs kept up inflationary pressures and squeezed corporate profits, the Bank of Japan said Monday.

The annual gain in wholesale prices was the biggest since comparable data became available in 1981 and twice as fast as in 2021 when a 4.6 percent increase was reported. In December alone, the price of goods traded between companies surged 10.2 percent, topping 10 percent for the second time in 2022 and marking the second-largest gain on record.

Japan saw the corporate goods price index rise year over year for the 22nd straight month, prompting companies to pass on higher costs to consumers to remain profitable.

Ideas:

Usually Japan companies are reluctant to pass on their costs to those next in the supply Japan even other companies besides the final customer.

Maybe after two years of increased energy and raw materials costs reducing many profit margins companies now feel they have no choice but to pass on their costs.

As they pass on their costs to the next company in the supply chain that company might pass on their increased costs to the next in the supply chain until it reaches the final customer.

By now consumers either have gotten used to the constant increase in prices and or are looking for substitutes if they are able to find any.

Article:

The country's consumer prices, which are affected by wholesale prices, have also been climbing, albeit at a much slower pace, and have remained above the BOJ's 2 percent target.

The yen's sharp depreciation against the U.S. dollar has added to the woes of resource-scarce Japan by inflating the cost of energy imports as well as those of raw materials and food items. Import prices gained 39.1 percent over the year in 2022, while export prices rose 16.2 percent in yen terms.

The BOJ has said that such cost-push inflation is transitory and ultralow rates should be maintained to achieve its 2 percent inflation target stably and sustainably.

Ideas:

Import prices increased by 39.1 percent while export prices increased by 16.2 percent which means most likely the Japanese current account lost revenue.

But we really don't know the value of imports and exports overall to determine if the current account decreased.

The BOJ can say that inflation is transitory or limited or short-term but most likely the average consumer might not feel that as they have live through it everyday.

The BOJ 2 percent inflation target is more about consumer demand and consumer spending and not really about wholesale price increases.

Article:

But rising prices of everyday goods have been hurting consumer sentiment and financial markets have piled pressure on the BOJ to tweak its policy at a time when major central banks have been fighting soaring inflation by raising interest rates.

The BOJ surprised markets in December by widening the trading band for benchmark 10-year government bond yields, even as its governor denied it was effectively a rate hike or part of monetary tightening.

The 10.2 percent gain in December wholesale prices was the steepest since 10.3 percent in September when Japanese authorities intervened in the foreign exchange market to stem the yen's rapid depreciation.

Ideas:

Most likely consumer sentiment has never been a strong component of the Japanese economy as Japanese consumers don't spend like they do in the US or the EU.

The BOJ keeps saying that its not going increase the key rate as they feel the Japanese economy is just too weak.

At the same time the BOJ has got to be under pressure to do something related to the weak yen and the constant increase in prices on the domestic level.

But the BOJ might still be on the right tract as even though the US and the EU have increased interest rates, inflation and economic growth in those countries and areas have not improved much.

Article:

Import prices climbed 22.8 percent in December, compared with a 12.1 percent increase for export prices.

Japanese companies have been reluctant to raise retail prices and instead have chosen to absorb rising costs for fear of scaring away consumers. The passing on of higher costs has become more evident, though, with price hikes across a wider range of items.

Among major items that reported sharp price increases, iron and steel products jumped 20.9 percent and pulp and paper rose 13.3 percent.

Ideas:

As import prices increased 22.8 percent in December and export prices increased 12.1 percent which means again the Japanese current account decreased.

But again we don't really know the real value of exports and imports to say how much the current account decreased in December.

Even though companies have been reluctant to pass on their higher costs, eventually as their profit margins continue to shrink they might not have a choice and pass on some or all of their costs to the customer.

By now, after two years most likely consumers in Japan have gotten used to the idea that many companies are passing on their costs to the customer.

Article:

Petroleum and coal products increased 8.0 percent and food prices were up 7.7 percent.

The government is scheduled to release consumer prices data for December on Friday, after the BOJ holds a two-day policy meeting starting Tuesday.

Ideas:

A 7.7 percent increase in food prices might have a significant effect on some consumers especially those who are in limited incomes or fixed incomes and even families as they have to find substitutes for food items that have risen too much for their budgets or incomes.

Most likely nothing really important is going to come out of the next BOJ meeting as they keep indicating they have no intention of changing their current ultra-low policy of keeping the rate low.

Even though the US and the EU have continued to increased its key rate the BOJ is doing the opposite and maybe it's good idea as the US and EU economies are very different than the Japanese economy.

Have a nice day and be safe!