Japan CPI : Updated March 29, 2024.

 

Japan core CPI logs fastest rise in 41 yrs in 2023, points to easing

Article Source: https://mainichi.jp/english/articles/20240119/p2g/00m/0bu/006000c

Ideas:

Japan is resource poor country, which means it has to import much of what it needs and if the yen is weak, import prices are higher than normal, putting a lot of stress on Japanese households.

Prices increases seem to be a global challenge as many countries/economies are experiencing an increase in inflation these days. 

Household utility bills are only a small part of the costs that households have to overcome. But as households costs continue to increase, there is the potential that there is not much extra income left for spending in the Japanese economy.

Food prices might be one of the biggest expenses that many families have to live with and lower-income families usually spend more per capita on food than higher-income households.

The Bank of Japan, like many central banks, want to see inflation in the 2 to 4 percent range, as many central banks feel its a manageable level. But it seems the Bank of Japan wants a 2 percent level, as maybe there are many senior citizens in Japan and they live on fixed incomes and inflation higher than 2 percent might be too much for them.

At the same time, it seems to the Bank of Japan is relying heavily on wage increases as a way to get out of the inflation trap the Japanese economy is in now. But the challenge with that is when companies increase wages, then they have to pay for the wage increases by increasing prices on their products.

The other challenge is that all companies in Japan need to increase wages, as up to 70 percent of Japanese wage earners don't work for large companies, and in April of 2023, it was mostly large companies that increased wages, and not many small and midsize companies increased wages.

For many years, Japanese companies were very reluctant to increase prices for fear of losing customers and or because many companies were not so many companies didn't increase their prices, even though they might have had profit margin challenges.

Even if inflation has decreased to 2.3 from 2.5 that is not a significant decrease for the average household or consumer to see or feel much of a change yet.

There is a lot of noise about what the Bank of Japan is going to do, but even if they do decide to change their ultra-low policy, most likely its not going to be too dramatic or significant at the beginning, as they will try to feel out what is best and see what happens with some strategic moves and see what the effects are on the Japanese economy.

Inflation is related to two kinds of variables. One variable is cost-push inflation or the increase in prices by companies because they need to pass on their costs to the next in the supply chain, and it has nothing to do with consumer demand.

Consumer demand is the other kind of inflation and as companies see sales increase significantly companies will increase prices due to increased demand for their products.

The Japanese economy has experienced cost-push inflation for a few years, but not much related to consumer demand, as consumer demand and consumer spending is always not what it should be or could be.

If many companies, in April of 2024, do increase wages significantly, they might need to increase prices on their products as a way to keep their profit margins in the safe-zone, and the key is what are Japanese consumer going to do with the increased price increases.

Back in 2014 and again in 2019 the Japanese government increased the sales tax from 5 to 8 8 percent and then from 8 to 10 percent. Each time, Japanese consumers went on buying sprees before the tax increases were implemented and then after the prices increases consumer demand significantly decreased until consumers got use to the higher sales tax increases.

Accommodation fee/price increases might be combination of increased tourism, both domestic and international and hotels are maybe trying to makeup for all of their losses during the pandemic period.

Also, because of a possible shortage of labor in the hotel industry, hotels have to pay higher wages to attract workers back to the hotels that might have been laid off or quit during the pandemic.

Fresh food is always a major variable related to inflation as growing seasons and import cost might increase the prices of fresh food, and maybe many households are thinking twice about what to buy and or what substitutes to buy because of high food costs.

There was no change in the January meeting of the Bank of Japan, but later, like in March of 2024 there were some moves by the Bank of Japan.

Even if inflation does get below 2 percent, its been high for so long, that Japanese consumers might not notice and it takes some time, to feel the effects of inflation changes, up and down.

Again, the seems to be a lot of noise about what the Bank of Japan is going to do in the future and are they going to make any significant moves that might have an affect on the Japanese economy. Most likely, again, if the they make a move its not going to be that significant in the beginning.

Again, the Japanese economy is a resource poor country, and has to import much of what it needs from energy to food. And as such the weak Japanese yen, has made import prices higher as imports now cost more.

The Bank of Japan, seems to be relying on wage increases as a way to slowdown inflation form the weak yen, But the challenge is will all Japanese companies comply and increase wages or will it only be large companies again like in 2023.

Some 70 percent of Japanese wage earners don't work for large Japanese companies, but work for small and midsize companies. If small and midsize companies don't come through that means up to 70 percent of Japanese wage earners will go on living with higher inflation while large company wage earners might see some relief with increased wages in April of 2024.

Have a nice day and be safe!