Bank of Japan Forecast:

 Article Source: https://mainichi.jp/english/articles/20230418/p2g/00m/0bu/081000c

Article:

TOKYO (Kyodo) -- The Bank of Japan is considering forecasting consumer prices will rise by around 2 percent in fiscal 2025 from a year earlier in its next price outlook report, to be released after a policy-setting meeting later this month, sources familiar with the matter said Tuesday.

If the tentative forecast is correct, the BOJ will see its 2 percent inflation target achieved about three years after academic Kazuo Ueda became governor. The policy-setting meeting, set to last two days and the first under the new leadership, will take place from April 27.

Ideas:

A 2 percent increase in prices might not be that big of deal for most consumers but then again if its after continual prices increase every quarter it then can become a much challenging situation for consumers.

The low-income consumer will be affected the most as they tend to spend a larger portion of their income on food than do those in higher income brackets.

The 2 percent goal has to be taken with grain of salt, meaning are prices increasing due to consumer spending and consumer demand or are prices increasing due to companies just passing-on their costs to the consumer or the next in the supply chain.

Article:

Excluding volatile fresh food items, Japan's core consumer price index has remained above 2 percent for nearly a year, but the central bank takes the view that its inflation target is yet to be achieved stably because most of the gains seen are attributable to the temporary effects of higher import costs, not strong domestic demand.

The BOJ also considers more robust wage growth to be vital in achieving the inflation target, something that Ueda's predecessor Haruhiko Kuroda did not achieve during his 10-year tenure that ended earlier this month.

Ideas:

Strong domestic demand is always a challenge for the Japanese economy as the Japanese consumer usually is not a big spender like the US consumer. 

And yes, because of the weak yen and the variance between the US currency and the Japanese currency import prices are much higher than what they should be.

And of course the more wage growth there is the better consumers/workers will feel and they might begin to spend more and maybe the Bank of Japan's 2 percent goal will be reached.

There is always the possibility, as companies increase wages, they will pass-on the costs to the next in the supply chain and or the final consumer, which in turn could increase inflation too.

Article:

In the latest outlook report released in January, the BOJ expected core consumer prices to gain by 1.6 percent in fiscal 2023 starting in April, followed by 1.8 percent in fiscal 2024.

Financial markets expect the BOJ to make changes at some point to its program to keep borrowing costs low for businesses and households. It currently sets short-term interest rates at minus 0.1 percent and guides 10-year Japanese government bond yields to around zero percent.

 Ideas:

An increase of 1.6 percent and even an increase of 1.8 is not much but again if inflation increase every  quarter that these rates then inflation can become a challenge for some income groups.

It seems the rates, at the present time, are good for the Japanese economy. But also the BOJ needs to be aware if companies and others begin to get too lazy they might have challenges if they increase the rates in the future.

The idea is companies and others become too dependent of the rates and if the rates are increased they will become too stressed because of the change in rates.

Article:

Ueda has underlined the need to retain its policy of monetary easing, as Japan will likely see its inflation rate undershoot the BOJ's target in fiscal 2023.

During his inaugural press conference after taking up the post on April 9, Ueda pointed to "good" signs of trend inflation picking up and wage growth accelerating, saying that there is a possibility that the inflation goal can be achieved stably and sustainably.

Ideas:

Central banks such as the Bank of Japan don't make sudden or drastic changes. And even if they decide to make changes in for example the key interest rate, they will send out a message and warn the financial markets that they are going to do some specific a.ction so that the markets are not caught off guard.

The question is has the wage growth been enough to get Japan out of the deflation challenge its been in for many years even decades. 

The news seems to say many big companies increased wages but many small and medium sized companies either didn't increase wages or much smaller increases in wages.

This of course is going to create even more income in-quality in Japan but maybe, unfortunately, its inevitable for a market economy.

Have a nice day and be safe!