Japan Core Inflation Slow: Updated June 7, 2024.

 

Japan's core inflation slows to 2.2% in April on food, services

Article Source:  https://mainichi.jp/english/articles/20240524/p2g/00m/0bu/007000c

Ideas:

The pace may have slowed, which of course is good, but when inflation has risen for almost 2 straight years, it can add up for Japanese households and businesses.

The Bank of Japan might want a inflation target of 2 percent, but it hasn't been able to achieve for a very long time. Of course the weak Japanese yen is part of the challenge, as a weak yen increases import prices on many things.

Perhaps the Bank of Japan should have a more flexible inflation target of 2 to 3 percent and that way it might be able to achieve its goal.

The Japanese economy has/was in a state of deflation for many years, if not decades, as consumer demand has not reached its potential, which means companies decreased prices as a way to stimulate demand for their businesses.

At the same time, due to the Toyota decision in the early 2000's not to increase wages. many if not all companies did the same thing, and only the past year as companies finally began to increase wages, which will help the Japanese economy to get out of its deflation situation.

People in Japan has told me that 5,000 yen used to buy a lot at a Japanese supermarket but these days it hardly buys anything at all.

Perhaps, as anywhere, consumer got used to lower prices and as inflation has continued on for a few years, maybe Japanese consumers are still not used to the price increases.

And as inflation has continued each month or near each month, it means the extra income of Japanese households has continued to decrease, which means of course less spending in the Japanese economy overall.

But there is always going to be  subset of any economy which doesn't feel the affects of inflation or the affects of less extra income that they can use in the economy.

Energy prices and maybe overall utility prices are beginning to stabilize and not expected to continue to increase overtime.

The service sector, which is a broad category of many different subsectors, might be increasing prices as a way to makeup for the losses during the pandemic as the service sector was hit the hardest during the pandemic.

At the same time, as foreign tourists pour into Japan, service companies might also be increasing prices due the the increased demand from foreign tourists.

As government subsidies begin to be lost, energy companies no doubt will have to increase prices to keep their profits margins intact.

And as the same time, as the Japanese yen remains weak, that could mean energy import prices too are going to remain high in the future.

Consumption or consumer spending by Japanese households can be both a boom or a bust in the coming months depending on wage increases. If all Japanese companies increase wages then it could be a boost for the Japanese economy, but if only large companies increase wages then it could be the continuation of the haves, large companies, and have nots, small and midsize companies in the future.

Its going to take some time, maybe not until the July-September quarter for the full affect of wages increases are seen in the Japanese economy.

Japanese workers will decide how much to spend in the Japanese economy and how much to save or some combination of both.

There has to be a balance in an economy between savings and spending and too much of either is not good for a balanced economy.

But too, the Japanese economy needs some kind of boost or shot, like a major surge in consumer spending to get over the so-called deflation period that it has been in for maybe three decades.

Have a nice day and be safe!