Japan Industrial Output: Updated Nov. 21, 2023.

 

Japan's July industrial output falls 2.0% on month

Article Source: https://mainichi.jp/english/articles/20230831/p2g/00m/0bu/009000c

Article:

TOKYO (Kyodo) -- Japan's industrial output in July contracted 2.0 percent from the previous month, affected by weakening overseas demand and China's economic slump, government data showed Thursday.

The seasonally adjusted index of production at factories and mines stood at 103.6 against the 2020 base of 100, the Ministry of Economy, Trade and Industry said in a preliminary report. The decline followed an upwardly revised 2.4 percent expansion in June.

Ideas:

The Japanese economy seems to be heavily dependent on industrial output and exports. And maybe even still heavily dependent on exports to China. 

As global demand goes, so does Japanese production and for the most part, its not a linear upward projection, there are stops and starts related to manufacturing.

The seasonally adjusted index is just a number as the important reality is what is happening t each individual company.

Any index just give a glimpse what might be happening and again the reality is what is really happening with each manufacturing company.

Article:

The ministry downgraded its basic assessment for the reporting month, saying industrial production "fluctuated indecisively." It said last month that output in June was "showing signs of moderately picking up."

Among the 10 sectors reporting falling output, production machinery declined 4.8 percent from the previous month due to weakening overseas demand, dragged down by semiconductor manufacturing equipment, molds and machining centers, the data showed.

Ideas:

Unfortunately, fluctuations in manufacturing seem to be occurring quite often, due to raw material shortages, semiconductor shortage, logistics challenges related to China, and so on.

And of course global demand plays a part in manufacturing, and if demand is down or not so good companies have to adjust their manufacturing schedules to fit demand.

An economy is very complicated and with many different sectors as each sector reacts/responds differently to economic situations. 

Its very rare for all sectors to be positive or positive growth at the same time, as with a market economy, there are those sectors and those in a sector who do better and some that doesn't have good growth or profits.

Article:

Production of electronic parts and devices also contributed to the overall drop with a 5.1 percent contraction, led by integrated circuit memory chips and fixed capacitors, amid the economic slowdown in China, a ministry official said.

Among the sectors reporting increased output, transportation equipment excluding motor vehicles jumped 9.6 percent, propped up by aviation engine and body parts.

Ideas:

Whether good or not so good, Japanese manufacturing seems to have placed a lot of emphasis in China, in China, which is natural as China as been the manufacturing base for the world for a while.

But recently China is having some challenges which is affecting many countries who have invested in China and manufacturing.

Even if a country just exports to China, with its manufacturing base in Japan, for the most part, it still has challenges as exports to China are having challenges as the Chinese economy has major challenges at this time.

Article:

Motor vehicles edged up 0.6 percent, helped by the easing of parts and material shortages that were caused by COVID-19 restrictions.

The index of industrial shipments fell 2.1 percent to 102.8, while that of inventories increased 0.9 percent to 106.7, rising for the third straight month.

Ideas:

Global demand for cars which is a major economic driver for the Japanese economy, both domestic and global exports.

Since 2020 Japan manufacturing has it share of challenges related to material and parts shortages.

There was also the challenges, in South-East Asia, with many manufacturing plants having to shut down because of COVID challenges in those countries.

The increase of inventories can be both a positive and negative. For example if inventories increase too fast or if there too many inventories, that might be an indication of demand is decreasing and or companies didn't estimate demand and they over-estimated what demand would be in the future.

If inventories are increasing, for example for three straight months now, that might be an indication that demand is decreasing and or demand was not estimated correctly,

Article:

Based on a poll of manufacturers, the ministry expects output to grow 2.6 percent in August and 2.4 percent in September.

The official pointed to the need to continue monitoring downside risks in overseas economies and the impact of higher prices.

Ideas:

While a poll of manufacturers is good, but no-one really can predict the future. Of course its good to see what companies are thinking but they can't predict the future exactly.

Even estimates or forecasts are never perfect they are just "guesses" as to what the future might be. Its good to have estimates or forecasts, but at the same time they again are just guesses about the future.

Global demand, for example in the US seems to be consistently strong, but not so sure about the EU with its higher prices and the EU central bank increase its key interest rate, which tends to decrease demand.

Have a nice day and be safe!

Japan And Deflation Ending: Ideas: Updated Nov. 19, 2023.

 

Japan has better chance of seeing end to deflation: gov't white paper

Article Source: https://mainichi.jp/english/articles/20230829/p2g/00m/0bu/013000c

Article:

TOKYO (Kyodo) -- Japan stands a better chance of finally breaking with deflation that has "shackled" the nation for a quarter of a century, amid recent strong wage growth and broadening price hikes, the government said Tuesday in its annual economic and fiscal policy report.

The government has yet to formally declare an end to deflation because current rising prices are largely due to higher import costs and there is still uncertainty over the sustainability of wage growth, a key factor in determining whether deflation is a thing of the past.

Ideas:

Recent wage growth, while good, is not as good as it should be. For example up to 70 percent work force in Japan work for small and medium sized companies and many of them didn't get a wage increase as only large companies gave raises.

The average wage increase was about 3.5 percent which is below the level of inflation in Japan. If the weak yen and its variance with the US dollar was a big as it is, maybe import product prices maybe be as high.

Until wages are high enough and enough companies, both small, medium, and large companies, deflation will continue to be a part of the Japanese economy.

Article:

But while such cost-push factors, rather than strong consumer appetite, may have been driving up inflation in recent months and increasing household burdens, they are also changing people's price expectations, according to the white paper presented to a Cabinet meeting on Tuesday.

"We should not overlook the fact that Japan has an opportunity to emerge from deflation, given that recent price gains have served as a trigger for consumer inflation expectations to heighten and for prices, which were pegged to zero, to rise," the report said.

Ideas:

Cost-push inflation is just companies passing on their supply and energy costs to the next in the supply chain, including the final consumer.

While households have become increasingly burdened because of inflation, there might be a sense of acceptance with the higher prices and maybe consumers will find a way to continue to spend. 

Eventually over-time, consumers find ways to accept the higher prices, that are within a certain price range, and just continue on with their lives and the higher prices.

When will Japanese consumers begin to feel comfortable with this higher prices in the economy, most likely when consumer demand and consumer spending is trending upward and not downward.

Article:

For deflation to officially end, Japan must judge there is no prospect of returning to a situation in which prices continuously fall.

The government said it must coordinate closely with the Bank of Japan and guide economic policy by carefully examining macroeconomic conditions.

Ideas:

If companies see and feel they can increase prices and not lose customers in the process, then most likely deflation has ended in Japan, and consumer spending will be back to normal or a new-normal.

But it might take some time, as many households are still constrained at this time. Its going to take a change in mindset and a change in spending habits for Japan to move out of deflation, as for too long, and understandably, Japanese consumers/households got used to the lower prices in Japan.

Again, wage increase will play a big part in ending deflation, as more and more wage earners get wage increases they will begin to feel good about their take-home pay and begin, eventually to spend some of it in the economy without the worry of higher prices.

Article:

"It is necessary to ensure an end to deflation by dispelling the deep-rooted deflationary mindset (among consumers) and boosting growth expectations."

Japan's inflation rate has already hit its highest level in over four decades and has stayed above the BOJ's 2 percent target for more than a year. But the government and the central bank expect inflation to slow in coming months as the effects of high import costs fade.

Ideas:

Japanese consumers have gotten used to 30 years of deflation and its not going to be easy to change their mindsets about prices and the economy. Only if a majority of workers can get significant wage increases, then eventually Japanese consumers will get to the higher prices and begin spend.

A 2 percent target goal is good but rarely does the Bank of Japan, or any central bank, have control over inflation. as most banks just respond for the most part and don't do much really to prevent inflation.

Inflation may indeed be slowing in the coming months, but households still have to deal with the inflation as is even if decreases only slightly. 

Article:

Companies have been relatively quick to pass on surging import costs of raw materials to their retail goods prices, but service prices have been more or less flat. Economists are keeping tabs on whether price hikes will further spread in the services sector.

The BOJ, meanwhile, is bracing for upside risks to the inflation outlook and has already tweaked its monetary policy by loosening its grip on long-term government bond yields that tend to rise when economic conditions improve.

Ideas:

Japanese companies, for a very long time, were reluctant to pass-on their costs to their customers as they felt they would too many customers.

But as their profit margins have continued to shrink now they feel they have no choice as profits keep decreasing.

Service sector companies were hit hard during the pandemic and now, as the pandemic as ended they might be reluctant to increase prices now as they are still trying to recover their customer base.

The Bank of Japan might have loosened its monetary policy slightly, but its has a long way to go to get its monetary policy in-line with other advanced economies.

Article:

Accelerating inflation is a headache for Japanese households, with real wages continuously falling despite the annual pay negotiations between management and labor unions for fiscal 2023 turning out to be the best in about three decades.

As the economy recovers from the COVID-19 fallout supported by pent-up demand for services, the spotlight has been increasingly on labor shortages in sectors hit hard by the pandemic.

Ideas:

While the wage increases for large companies was on average about 3.5 percent, the majority of wage earners in Japan, about 70 percent, didn't get a wage increase.

So wage increases have a long way to go for households or consumers to feel good about spending normally again, as inflation is still in Japan, and might be through 2024.

Again, the services sector was hit hard by the pandemic, and maybe had to layoff a significant number of its workers.

The problem now is there is a service sector labor shortage and many service sector companies can't find the workers they need.

If they would higher wages then maybe more workers would want to work in service sector jobs but service sector type jobs don't pay good salaries and some or many are minimum wage type jobs.

Article:

The white paper noted that Japan has entered a phase in which wages can rise easily due to tight labor market conditions. It also underlined the need to improve labor productivity, reskill the workforce and facilitate job-hopping for better pay and working conditions.

Financial worries, especially among younger generations, are seen as part of the reason why Japan has been struggling to reverse the dwindling birthrate and Prime Minister Fumio Kishida has vowed to boost the state budget for childcare support drastically because now is the "last chance" to change the trend.

Ideas:

Many companies might see the need to increase wages to get more talented workers or even to get workers, but the challenge is their bottom lines or profits margins might not allow the wage increases that are needed to attract talented workers or even get new workers.

Labor productivity has been a challenge in Japan for a very long time, as for the most part, Japanese companies are too rigid and not reluctant to change.

The government should have programs or policy which provide for job hopping/changing incentives. They should makes it easier ,more flexible, for workers in Japan to change jobs easily. A more flexible labor market will increase economic growth.

What Japan needs is better policies for getting people young foreign workers into Japan, which they can raise their families and the population will increase.

For example, one estimate stated that the US, needs 3 million new legal immigrants a year as its birth rate is falling too.

Article:

This comes as increased fiscal spending to support households and businesses during the pandemic and recent inflation have put fiscal restoration on the backburner. Japan's fiscal health is the worst among advanced economies with debt more than twice the size of the economy.

"The government should put more focus on tackling the declining birthrate or spurring corporate investment over the mid- to longer-term than emergency spending to support people's livelihoods and stimulating demand," the document said.

Ideas:

While its important to support households and businesses in Japan, its another thing to think about the debt the government has, as yes, it will eventually become a major challenge for the Japanese economy. 

But what is the major priority, bring down the debt or help families and businesses. The UK back around 2010 tried austerity and it doesn't work too well. The same with the EU around the same time, as more were less well off than before.

Unfortunately, politics always gets in the way of policy, that in the long term might be good for the economy, but might cause some short-term pain. 

Peoples livelihoods will always take precedence over the polices that might help the economy, and bring not too much short-term results.

Article:

The government is expected to extend its fuel subsidy program beyond this fall while Kishida has unveiled plans to draw up a fresh economic package next month.

A total of 141 trillion yen ($964 billion) was allocated to steps to cope with COVID-19 and inflation over the three years to fiscal 2022, of which 128 trillion yen was funded by government debt issuance.

Ideas:
Has the fuel subsidy program had any real affect on households and have wholesalers been able to benefit from the subsidy program.

Japan, compared to some advanced economies seems to be big spending economy, and it loo like its going to change any time soon.

The challenge is, even for the US, is once governments start to spend, they can't seem to stop as balancing the budget is no longer the priority of the government.

But as Japan's debt to GDP ratio is now twice the size of economy, it might need drastic measures to lesson the debt overtime.

Article:

The white paper raises the alarm about a recent rise in the issuance of short-term, one-year government bonds, in relation to longer ones. The BOJ already owns about half of the outstanding government debt as part of its aggressive monetary easing.

"When the percentage of short-term bonds increase, this will make (the nation) more directly impacted by bond price fluctuations caused by external factors," the white paper said. "The pace of increases in debt-servicing costs will also quicken."

Ideas:
The Bank of Japan, most likely is not too concerned with its debt and how much it owes, as its more focused on managing the inflation and most likely will begin think about how the debt will challenge the economy in the future.

If the Japanese government or the Bank of Japan were really concerned about it debt challenges, they would have tried to solve them or reduce a long time ago.

But the reality is, households and businesses take priority over government debt challenges and always will in Japan.

The Japanese governments and the Bank of Japan might talk about it but most likely nothing will be done at this time.

Have a nice day and be safe!

Japan's Jobless Rate: Updated Nov. 17 2023

Japan's July jobless rate rises to 2.7% as more women seek employment

Article Source: https://mainichi.jp/english/articles/20230829/p2g/00m/0bu/005000c

Article:

TOKYO (Kyodo) -- Japan's jobless rate rose to 2.7 percent in July from 2.5 percent a month earlier, deteriorating for the first time in four months, as more women sought employment amid higher living costs, government data showed Tuesday.

The job availability ratio inched down 0.01 point from June to 1.29, falling for the third straight month, as more people looked for employment while job offers remained at roughly the same level, according to separate data.

Ideas:

An increase to 2.7 from 2.5 is not that much, and yes, more people/women are probably looking for work as inflation continues in Japan, with higher prices.

The jobs availability ratio at 1.29 meaning there were 129 jobs for every job seeker, but what kinds of jobs are being offered. Are they full-time full benefit with livable salaries or are they contract jobs with little benefits and lower than normal salaries.

It's important, for any advanced economy, that jobs can be offered year-round instead of just once a year for recent college graduates. Workers in their 30's 40's and 50's should be able to look for and find work anytime of the year.

A flexible economy should be open for work anytime of the year if workers want and need to change jobs. Japan and South Korea in recent years have become more flexible with regard to offering work chances on a year-round  strategy instead of just targeting recent college graduates.

Article:

The ratio indicates there were 129 job openings for every 100 job seekers.

The number of people with jobs fell 0.1 percent to a seasonally adjusted 67.45 million, while the number of unemployed people increased 6.4 percent to 1.84 million, according to the Ministry of Internal Affairs and Communications.

Ideas:

There are some jobs that are affected by seasons or the time of year, and as a result, sometimes there are more jobs and sometimes there are less jobs. 

There are supposedly 125 million people in Japan, but only 75.45 million were employed. Of course take into account the number of children not working and the number older people who have retired and not working.

The increase in unemployment could be from many variables such as companies going out of business to people quitting their jobs and looking for work and so on.

In a market economy, there is always going to be a those unemployed for many reasons. But just because a person is unemployed might not even be their fault as maybe the company they were working for just went out of business, and some are actually looking for work.

Article:

The number of unemployed woman climbed 150,000 to 810,000, while that of men dropped 20,000 to 1.04 million.

The number of women not in the labor force, comprising those aged 15 and above who are not seeking employment such as housewives, fell 170,000 to 25.69 million from June, indicating more women were looking for jobs.

Ideas:

In a market economy, its good if everyone can the best possible job they want but its not always possible, so people have to settle for what they can get and do the best they can with the job.

But at the same time, in Japan, there is a large variance between pay for women and pay for men. but its the same in the US.

As inflation continues to affect households in Japan, women might be looking to get any good job they can but at the same time, not settle for just a minimum wage job at a conbini or something like that. 

Women today want good paying jobs if they can get them and they don't want to settle for jobs that don't pay what they need or want.

Article:

A ministry official attributed the increase in women seeking employment to recent inflation, the lifting of coronavirus-related restrictions that has encouraged people to go out and the anticipation of higher minimum hourly wages.

The ministry will monitor whether such women successfully land jobs and contribute to a decline in the unemployment rate, the official said.

Ideas:

Japan has one of the lowest unemployment rates in the world, but at the same time, again, women are usually paid less than men and women occupy more service sector jobs, which usually pay lower salaries.

What the problem with wages is/are most service type companies again don't pay good wages or even good minimum wage rates, as their profit margins have shrunk to do inflation.

And unfortunately, those at the bottom of the pay-scale such as minimum wage service sector jobs might not even see how much an increase, if any, due to decreased profit margins.

Many big companies gave on average 3.5 percent wage increases but how much service type companies and wage increases, which employ more women than men.

Article:

By sector, the number of workers in construction rose 3.5 percent to 4.74 million, while employees in wholesale and retail services increased 1.5 percent to 10.63 million on an unadjusted basis.

According to separate data from the labor ministry, the number of job seekers grew 0.9 percent in July from the month before, while the number of job openings remained flat.

Ideas:

These days, many young people, both college graduates and non-college graduates then to stay away from jobs that require a lot of manual labor such as construction type jobs.

Actually today, Japanese young people stay away for jobs at convenience stores as maybe they think the work it too hard, the hours are too long, or the part-time pay is not enough.

Whenever I travel to Japan and to convenience stores such as Lawson, Mini-stop, 7/11 and so on I only see foreign students working there and not Japanese students.

Wholesales and retail service sector jobs might attract more women to those kinds of jobs as maybe they offer more flexibility if they are a mother with small children.

Article:

A labor ministry official said more people were looking for jobs after company bankruptcies and to cope with surging prices.

The information and communications sector saw the biggest increase in employment offers, up 5.2 percent from a year earlier, followed by 2.1 percent in the accommodation and restaurant sector.

In contrast, job offers fell in the manufacturing sector and construction by 11.4 percent and 8.0 percent, respectively.

Ideas:

In a market economy, especially a market economy with not good economic conditions, might have a higher than normal bankruptcies.

Most likely, the continued high inflation might have affected some companies profit margins to the point they had to file for bankruptcy.

Just what kinds of jobs are available in the information and communications sector and what kinds of workers to they attract. It seems college graduates with hi-tech related degrees can easily get a jobs in this sector.

The accommodation and restaurant sector is another sector which might attract a lot of women as their jobs might be more flexible for working women with children.

Most likely the manufacturing sector saw a decrease in jobs because the sector might be dependent on export manufacturing and the global trade/export market has not been that good recently.

Construction also might be dependent on material costs and as their profit margins have significantly decreased, due to the increase in raw materials they have/had no room in their profit margins to higher new workers.

At the same time, as many young workers tend to shun working in the construction industry, companies, at this time, might not be offering any new jobs.

Have a nice day and be safe

Japan Household Income Gap: Updated Nov. 16, 2023.

 

Japan's household income gap remains near record high amid pandemic

Article Source: https://mainichi.jp/english/articles/20230822/p2g/00m/0bu/050000c

Article:

TOKYO (Kyodo) -- The income gap among Japan's households has remained close to the record-high disparity logged in 2014, a government survey conducted in 2021 showed Tuesday, with the coronavirus pandemic likely having hit temp workers hard.

The key parameter for measuring income inequalities, known as the Gini coefficient, came to 0.5700, worsening 0.0106 point from the previous study in 2017, the Health, Labor and Welfare Ministry said. The 2017 figure showed a slight improvement from 2014, when the gap marked the highest-ever 0.5704.

Ideas:

The income gap, or Gini coefficeient, most likely is going to get even worse as many as 70 percent of the Japanese workforce didn't get a wage increase or almost no wage increase. While big companies gave wage increases, many small and medium sized companies did not.

Even going from 0.5704 to 0.5700 is not much of a change and most likely many households related to part-time or contract work didn't see much of a difference.

Japan, it seemed used to have fairly high standard of living among all households. But has changed a lot in recent decades as Japanese companies have been using more contract workers and part-timer workers to save on costs.

Article:

A Gini coefficient of 1 expresses maximum inequality, where only one person has all the income in society. A Gini coefficient of 0.4 is regarded by social scientists as the danger line where income inequality could trigger social unrest.

According to the latest survey that covered income for 2020, when the first COVID-19 state of emergency was declared in Japan, the annual average figure before tax and social security benefits like public pensions across all Japanese households fell 1.4 percent to 4.23 million yen ($29,000) from the 2017 survey.

Ideas:

Social unrest is highly unlikely in Japan, but what is important is consumer demand and consumer spending will be constrained even more because of the income gap among households in Japan.

Japan, unfortunately, has become like most advanced economies where the income gap is getting larger every year. 

Before the Japanese asset bubble collapse of 1989/1990, Japan had one of the highest incomes among advanced nations, but over the last three decades Japan has seen its income gap increase a lot each year. 

Some might say that Japan grew too fast in the 70's, and 80's to where the structure of the Japanese economy couldn't keep up with the speed of change.

What is seeing now is the result of maybe too much growth and too fast of growth as the 1990's 2000's and 2010's has seen less growth compared to the past.

Article:

The ministry noted that the government's efforts to keep unemployment low, among other measures taken during the pandemic, helped prevent the income gap from widening further from the previous survey, which saw the first improvement in 36 years.

Ideas:

The Japanese government might have tried to keep unemployment low, but how many were actually laid off or lost their jobs during the pandemic. And how many of those laid off have found work in the sector they were laid off from, or have they moved in to other jobs in other sectors.

For example, South Korea has an unemployment problem among older workers or those at or near the retiring age. But most want to work, and of need to work.

The South Korean government has been giving these kinds of workers low paying jobs, to make it look like they are employed but in reality they just do menial type work.

The Japanese government needs to do better for it older workforce, and not just give them menial low-paying type jobs to look like they are gainfully employed.

But one good thing about Japan, as Japan has a labor shortage, many older workers are able to find work in the service industry, while in South Korea, service type companies only want young workers.

Article:

The Gini coefficient for "redistributed income" -- net income inclusive of social security benefits -- stood at 0.3813, an improvement of 33.1 percent compared to the Gini coefficient for gross income excluding benefits.

The latest study, which has generally been conducted once every three years in Japan since 1962, was delayed for a year due to the pandemic. It was most recently conducted in July and August 2021 on 8,042 households, of which 3,316 gave valid responses.

Ideas:

Keeping on the same ideas from above with the labor shortages in Japan, many older workers want to continue to work and some service type companies are facing labor shortages, and as such these companies are willing to hire older workers, if they can do the job.

While the salary or wage may not be that good, but maybe they are being productive by working and being around people/customers that their service type company. 

Recently there was an article about some older workers at McDonalds , in Japan, who are still working and still doing the job.

That is not happening in South Korea, as companies only want young workers and they won't hire older workers, who have a lot of experience, and are harder workers compared to the younger generations.

Have a nice day and be safe!

Japan Consumer Prices: Updated Nov. 15, 2023.

Japan's core consumer prices rise 3.1% in July on year

Article Source:  https://mainichi.jp/english/articles/20230818/p2g/00m/0bu/022000c

Article:

TOKYO (Kyodo) -- Japan's core consumer prices in July rose 3.1 percent from a year earlier, well above the Bank of Japan's 2 percent target, as food and service price hikes kept the overall inflationary trend intact, government data showed Friday.

The nationwide core consumer price index, excluding volatile fresh food items, rose for the 23rd straight month, amid emerging signs of entrenched inflation hurting consumer sentiment.

Ideas:

Most central banks prefer to see inflation between 2 and 4 percent as they think that is a manageable level. 
Maybe the Bank of Japan feels 2 percent is a good level, as maybe if it is 3 percent or higher many lower-income or fixed-income households will suffer too much.

The 3.1 percent is being added on to inflation that has already been in the Japanese economy for sometime.

For 23 straight months Japanese consumers have had to endure increased inflation and most likely it will continue into 2024.

Consumer sentiment or feeling has got to be low in Japan as maybe they might think when is is going to end.

Article:

The key gauge of inflation slowed from 3.3 percent in June as the impact of higher fuel costs, a major driver behind the recent bout of cost-push inflation, has been waning, according to the Ministry of Internal Affairs and Communications.

The gauge remained above the BOJ's 2 percent target for the 16th straight month.
Ideas:

Inflation might be decreasing but its most likely still too high for the average consumer or household.

If inflation were above the 2 percent level because of consumer demand and consumer spending then most likely the Bank of Japan would not be worried too much. But because consumer demand and consumer spending is being contained due to inflation, the Bank of Japan might somewhat concerned.

Consumer sentiment or feeling is very important, as if consumers don't feel good about the economy and the future they are not going to spend as needed to get the economy growing again.

Article:

The core-core CPI, which reflects the underlying inflationary trend by stripping away volatile energy and fresh food prices, rose 4.3 percent, accelerating from 4.2 percent in the previous month.

"With inflation entrenched and real wages falling, there is concern about the negative impact on private consumption," said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting.

Ideas:

Inflation at 4.2 or even 4.3 is above the 2 to 4 percent level that most central banks want to see, even though the Bank of Japan has a target of 2 percent, so it has a long way to go to get inflation back down to the 2 percent level.

Real wages are wages without inflation or nominal wages. The average wage increase was around 3.5 percent which is still below the 4.3/4/2 level of inflation in Japan. The 3.5 was just the average as many small and medium sized companies didn't give wage increases, which of course meant many employees in Japan didn't get a wage increase yet inflation keeps increasing.

Private consumption or consumer spending, about 50 percent of Japan's GDP, is always challenge for the Bank of Japan as Japanese consumers just don't spend as freely as US consumer do.

Article:

"The risk is that higher goods prices will prompt consumers to start curbing spending on services, which has so far been supported by pent-up demand," he said.

Japan's economy grew for the third straight quarter in April to June but private consumption, which accounts for more than half of gross domestic product, unexpectedly fell even as strong catch-up demand for dining out and traveling remained.

Ideas:
Pent-up demand will last only so long and then consumers/households will get tired of the continued increase inflation and begin cut-back on their extra income spending as inflation will continue to erode their extra income.

Private consumption or consumer spending can only be sustained so much as then it will begin to stagnate and or decrease due to inflation concerns. 

The Japanese economy, like any economy, is dependent on consumer spending as its the largest factor related to economic growth in any major economy.

For example there is consumer spending, business investment/spending, government spending and the exports minus imports.

Of the four majored variables related to GDP growth only consumer spending is a factor as business investment/spending is never enough to grow the economy. 

Government spending, while used at times, as consumer spending is not high enough, is not high enough for economic growth.

Exports minus imports, are still never high enough for economic growth by its self.

Article:

 Food prices jumped 9.2 percent while durable goods saw a 6.0 percent increase.

Service prices increased 2.0 percent, marking the sharpest gain in roughly three decades without the effects of past consumption tax hikes, after price hikes were largely seen among goods.

Ideas:

As food prices continue to increase, most likely the fixed-income groups along with lower-income groups might begin to cut-back on their normal food purchases and look for substitutes or lower-priced food.

Unfortunately, the lower-priced food is always the unhealthiest choice for consumers.

Durable goods, which might be goods made of metal products might have seen price increases due to raw material price increases.

Service prices might have increased due to the fact that service type businesses were the hardest hit during the pandemic and they have increased prices as a way to makeup for lost sales and profits during the pandemic.

Article:

Accommodation fees jumped 15.1 percent during the summer holiday season, partly because of some curtailment of government subsidy programs aimed at spurring tourism in the aftermath of the COVID-19 pandemic.

Mobile communication fees surged 10.2 percent, accelerating at the fastest pace since comparable data became available in 2001.

Ideas:

Accommodations might have increased fees during the Obon season as tourism demand increased which is normal during any holiday period.

The government subsidy program might have stopped but most likely that didn't stop tourists from traveling around Japan.

At the same time, as the services sector, which includes accommodations was the hardest hit sector during the pandemic, they also might have increased prices as a way to makeup for lost sales and profits during the pandemic.

Mobile communication operators, which had major cutbacks before the pandemic might too be making up for lost sales and revenue.

Article:

Energy prices dropped 8.7 percent, aided by government subsidies to curb household utility bills that helped pushed down the core CPI by around 1 percentage point.

The BOJ has already lifted its inflation outlook for fiscal 2023, forecasting the core CPI will rise 2.5 percent but undershoot its 2 percent target in the following two years.

Ideas:

Energy prices might have dropped 8.7 percent but are they still too high for the average family and do the subsidies also help the suppliers of energy in Japan.

Core CPI might increase to 2.5 percent but that of course is added onto what inflation has done in Japan the last two years.

Even with a drop of core CPI by 1 percent it might still be too high for the lower-income and fixed-income groups in Japan.

At the same time, inflation is very much an individual variable, meaning not all families feel the same effect related to inflation, as consumers don't all buy the same products or services so there might be selective inflation depending on what you buy or use in an economy.

Article:

While maintaining its program to keep borrowing costs depressed, the BOJ in July loosened its grip on 10-year Japanese government bond yields, allowing them to rise more.

The central bank has stressed the need for sustained wage growth to achieve its 2 percent price stability target, saying the recent bout of inflation has been largely caused by higher import costs, not strong demand.

Ideas:

The Bank of Japan might have loosened its grip on Japanese government bonds, but for the most part, it really hasn't done much related to inflation, preferring to let inflation just run its course and not interfere too much in the economy at this time.

The Japanese government and Bank of Japan, while two separate entities, both stress the need for wage growth as a way to stimulate and grow the economy.

While many large Japanese companies increased wages, many small and medium sized companies, most likely didn't increase wages, which accounts for maybe 70 percent of all wage earners in Japan. 

Strong demand will not be seen in Japan until all companies can increase wages, and if not then there is going to be wage/income inequality variance which will constrain consumer demand in the Japanese economy.

To be fair, because of inflation, energy prices, and raw material price increases maybe many companies just can't increase wages at this time, but maybe when inflation decreases and their profit margins increase again, they can think about increasing wages.

Article:

Kobayashi said more companies have been raising prices to pass on higher labor costs, particularly in sectors that are short of labor such as restaurants, in addition to those coping with high raw material prices.

"Corporate earnings are expected to be robust so the question is whether they will continue raising wages. If that pass-through to wages doesn't happen, consumption will take a hit," Kobayashi added.

Ideas:

Its one thing to pass-on or increase prices due to high raw material costs, but it not logical to increase price because of labor shortages unless a company is trying to build up extra reserves in order alleviate its labor shortage.

Corporate earnings have been robust for sometime, but companies have refused to increase wages until just recently.

For example, since the 2008 global financial crisis, many companies have horded their cash holdings, and haven't increased wages for employees during that time.

Consumption or consumer spending is already beginning to decrease as wages have not kept up with inflation, and then as 70 percent or more of wage earners didn't get wage increases it could become a compounding factor, meaning it can spread and multiply overtime.

Article:

Economists say recent cost-push inflation has already peaked, after the core CPI surged 4.2 percent earlier this year. But it is expected to slow only moderately in the coming months, with eyes on whether the government will extend the energy-related subsidy programs beyond this fall.

Ideas:

Inflation might be slowing but most likely its still too high for most households and even businesses.

And what about the suppliers of energy in Japan, are they too, as had been reported still getting subsides as they have to import the energy products into Japan.

Energy related government subsidy programs might be good but a government can't do everything in a market economy, as it can only do so much as too much interference might not be the best way to improve and economic situation.

Article:

Another concern is the weakness of the yen, which inflates import costs for resource-scarce Japan. The Japanese currency remains under selling pressure, even after the BOJ's decision to make its yield cap program more flexible and narrow interest rate differentials with the United States.

"While the yen's depreciation of late will likely keep prices from falling, we expect disinflation to continue for some time, given there has been some weakness in consumption," said Toru Suehiro, chief economist at Daiwa Securities, referring to the possibility that the pace of price hikes will slow.

Ideas:

As the US recently has been increasing its key interest rate, while the Bank of Japan has done the opposite by not increasing its key rate, the difference between Japan and the US and key rate in both countries has weakened the Japanese yen and caused import prices to increase at the same time.

A weak yen is good for exporters, as they can get extra income for their products soled in the US but causes imports prices from the US to be more expensive in Japan.

Disinflation might not be a bad thing for the Japanese economy, as it might be a temporary slowing of inflation in Japan. But the challenge might be to make sure that disinflation doesn't become de-flation or the falling of prices too low.

But at this point in time with inflation as high as it is, there seems to less chance of deflation but a continuation of disinflation in Japan.

Have a nice day and be safe!