Bank of Japan and Inflation: Updated September 16, 2024.

 

Bank of Japan considering inflation forecast for FY 2026 of around 2%

Article Source:  https://mainichi.jp/english/articles/20240419/p2g/00m/0bu/059000c

Ideas;

 Regular Japanese probably don't think much about what is going to happen in 2026 as they are only thinking about today and maybe tomorrow.

Estimates and forecasts are good and needed in some situations, but a forecast related to  two years is risky, as the situation can change a lot in two years.

No one can be sure if inflation will be 2 percent or 2.5 percent or even 1.5 percent precisely in two years.

The kind of inflation the Bank of Japan is looking for is consumer demand inflation, and companies increasing prices based on consumer demand, not the inflation related to an increase in energy and material cost increases.

Wage growth in Japan is long overdue, as it been suggested, many companies have not given wage increases for a very long time.

The US key rate and the Japanese key rate is not even close, and the reason maybe for the weak Japanese yen.

While a 2.8 percent increase in consumer prices might not seem like that much, but if you add up the 2.8 percent every month, in Japan, since the pandemic, it adds up every month.

Perhaps the Japanese government should have put some prices controls on some products such as rice, eggs, bread etc. to control inflation some.

Price controls can help but they should be used only in emergency situations like in the summer of  2024 , when there was a supposed rice shortage and rice prices sky-rocketed in Japan.

Underlying inflation might be consumer demand and consumer spending, which has never been that robust in Japan, as compared to the US.

As Japanese consumers begin to spend significantly, prices might begin to increase as companies see consumers buying their products or services, and will naturally increase prices because of demand.

But that is not going to happen until most or many people can see and feel significant wage increases, as unfortunately, up to 70 percent of Japanese workers don't work for the large name-brand companies in Japan.

The small and midsize companies didn't or don't pay the higher wage increases that the large Japanese company do.

During the pandemic and later, the US Federal Reserve, the US central bank increased its key rate many times, while the Bank of Japan didn't increase the rate until this past march, which has caused a large variance between the two key rates, which most likely is the reason for the weak Japanese yen.

The Bank of Japan is always talking about what its going to do with the weak Japanese yen, but, has not done much.

However, it remains to be seen or known that the BOJ is doing behind the scenes as they don't want to be seen or known as a currency manipulator on the global stage.

Have a nice day!