Japan Core CPI: Updated Feb. 5, 2025.

Japan's core CPI up 3.0% in Dec. after end of gov't energy subsidies

Article Source: https://mainichi.jp/english/articles/20250124/p2g/00m/0bu/004000c

Ideas:

Japan has been experiencing increases in its core consumer prices since the pandemic period and it doesn't seem to be decreasing much yet.

The Bank of Japan is hoping inflation will be 2.0 percent or less and at the same time it hopes consumer demand and consumer spending will be the main reason for inflation an not companies passing-on their increased costs to the next in the supply chain.

Government subsidies to combat inflation is good and needed but the Japanese government can't do everything as its debt is among the highest among OECD countries.

Most advanced countries use interest rates as a way to control or limit inflation but the Bank of Japan has only recently started using the rate again, after many year of not increasing the rate.

While 2.4 percent might not be much but for some income groups it can be a lot and they begin to look for substitutes if at all possible.

An increase in the key rate increase to 0.5 percent doesn't seem like much but it might be enough to slow inflation as maybe some businesses or households will not go to the bank to get loans as the rate interest rate might discourage them.

The CPI increase was driven by cost-push factors which means companies were passing-on their increased costs to the next in the supply chain including the final retail consumer.

Currently it appears the trend is going to continue but by how much, as it could decrease or it could increase depending on the weak Japanese yen, which increases import prices in Japan.

The Bank of Japan is looking for Japanese companies to increase wages again this year and if the wage increases are to the liking of the Bank of Japan it will most likely increase the key rate again in the future.

The Japanese yen is weak because of the variance between the US key rate and the Japanese key rate and maybe the EU rate too. 

As the Bank of Japan begins to increase its key rate and the US begins to lower its key rate the rates of both countries begin to get closer together which can improve the weak Japan yen to become stronger.

Japan is resource-poor country which means it has to import much of what it needs including its energy needs, which can often fluctuate and Japan is mostly helpless to do anything about global energy prices.

There has been talk that Japan is considering going back to using nuclear energy, which is less expensive but some might say more dangerous especially since the 2011 earthquake and tsunami disaster which caused the shutdown of many reactors in Japan.

Again, as Japan is a resource-poor country which means it has to import much of what it needs including many food products or food supplies such as wheat.

The summer rice shortage is something of a mystery as some blame the poor growing season for the supply shortage and some blame other reasons such as the distribution system for increase in rice prices stating last summer.

Weather can always cause prices to go up or down depending on the situation of a good growing season or a not so good growing season and even global situations related to the weather can affect food price going to Japan.

Many years ago Japanese companies were reluctant to pass-on their increased costs to the next in the supply chain and especially the final retail customer as they were afraid of losing customers.

But times have changed as many companies profit margins are just out of control and inflation related to increased food material costs and energy costs have just become too much for many companies to handle so now they have no choice but to pass-on their increased material and energy costs to the next in the supply chain and yes including the final retail customer.

The increase of durable good might be something that could be related to an increase in the cost of manufacturing the good as again material and energy costs have increased the costs of everything in Japan and globally.

Usually the services sectors has the lowest wages as many services companies might only pay minimum wage or something like that. 

But as there is a labor shortage in Japan now many service companies now have to increase wages as a way to get the best talent possible even if the wages are not the best.

The Bank of Japan is looking very carefully about what Japanese companies are going to do with wage increases as the BOJ is hoping the increases will be enough to help the economy and consumers will begin to spend again to the point that the economy will grow again.

Have a nice day!