BOJ Rate Increase: Updated Jan. 6, 2025.

Bank of Japan lifts policy rate to 30-yr high of 0.75% amid persisting inflation

Article source:   https://mainichi.jp/english/articles/20251219/p2g/00m/0bu/018000c

Ideas

The Bank of Japan wouldn't increase the rate unless it was confident that there won't be too many side effects to the Japanese economy. And at the same time trying to get the key rate closer to the level of the rate of other advanced economies.

Most economies when inflation is consistent will use the strategy of increasing the key rate as a higher rate is motivation not to take out business loans, consumer loans and using credit cards.

The BOJ is hoping that wage growth can help with the improvement of the economy and spur some kind of economic growth while the higher key rate might actually reduce some spending in the economy.

The Bank of Japan tries to ensure, with its communication, that whatever it says and does doesn't cause harm or upset both the domestic financial and global markets.

At the same time, it seems, as usual, with most central banks, it has kept some sense of the unknown what its going to do next as it wants to give itself room to change and maneuver as needed in the future.

The Bank of Japan, for the most part, is still has a dovish stance but it also gives itself room to make changes including increasing the key rate as needed to combat inflation of help the Japanese economy improve.

The Bank of Japan is in a difficult situation as it knows increasing the key rate can cause the bond yield to increase and at the same time might cause the Japanese yen to become weaker but its like a doctor prescribing a pill or medicine knowing full well there are going to be some side effects., but ultimately the potential for improvement is what the BOJ is looking for.

Japan is a resource-poor country and has to import much of what it needs, as as result a weak Japanese yen increases the price of imports, which are then passed-on in the supply chain including the final retail customer.

Again, the BOJ wouldn't increase the key rate if it felt that there is the possibility that it can help reduce inflation and help improve the Japanese economy.

But at the same time, its not a 100 percent guarantee that the rate increase will do what it supposed to do, as for example other advanced economies have increased the rate and its not a 100 percent full-proof remedy to reduce inflation and or improve an economy.

And yes, wage growth or companies increasing wages is not a full-proof strategy to help the economy, as to be understood, only about 30 percent of Japanese workers work for the large name-brand Japanese companies and the wage increase mainly goes to large company workers and the small and medium size company worker, which make up the other 70 percent of the Japanese workforce, usually get smaller wage increases which may or may not be more that what the inflation rate is in the economy.

There was always a goal or strategy for the lower borrowing costs, as the BOJ felt the Japanese economy at the time, was never really strong enough to handle a rate increase and that there would be too many side effects to the Japanese economy, so the reason for the low key rate for almost a decade. Was it the right decision at the time is difficult to say and running experiments on a an economy to see what would work and not work is not the same a running an experiment in a science laboratory, as all economists have to go on is observation related to what they do as see.

Deciding what it the real reason for inflation whether its cost-push factor or other factors is not easy to determine and the BOJ might be right or it might off a little as inflation could actually be above the 2 presence level. 

Most central banks want inflation to be around 2 percent, not much more, as they feel it's a manageable level where money is flowing through the economy at a good rate, not too fast and not too fast. 

Any slower they feel the economy is moving too slow and money or transactions are not enough and moving too fast or spending has become too much they might feel an economy is becoming over-heated.

Financial markets, both domestic and global watch what the BOJ is going to do almost everyday including what they say as what they say is usually clues to what might happen in the future.

As a result most central banks are very cautious or are very reserved with their communication  to public as they don't want to say or signal anything that can harm to markets or cause a 24 hour global move in the financial markets.

And again, to eliminate as many side effects as possible the BOJ or most central banks will not increase the rate anymore than is necessary as even a slight increase can have significant effects on an economy. So, if using the key rate and keeping it in its neutral zone is the best strategy that is what central banks will do.

And again, the BOJ is on purpose not saying where the neutral levels are as it wants to keep its options open and at the same there is always a level of uncertainty to where the real neutral level is or where is should be.

And yes, in theory, a rate hike potentially is supposed to cause borrowing to be more expensive, supposed to reduce spending, and supposed to reduce investment but at what level of each going to be reduced is always the key question and how long its going to take to reduce inflation or stabilize prices is again the key question, as at times is very hard to answer, as the BOJ or any central bank is dealing with human behavior and humans at times can be very unpredictable.

The current Prime Minister of Japan is a supposed fiscal dove which means she favors economic growth through government spending and even including keeping the key rate low.

But in this case, it seems she might be in favor of increasing the rate as a way way to help the Japanese economy as inflation as been continuous almost since the pandemic started and hasn't gone away just yet.

And of course a rate increase could cool the Japanese economy but again its seems to Prime Minister is willing to give the BOJ a chance with rate increase and see if it can reduce inflation and improve the economy.

Yes, for a very long time, while other central banks including the EU central bank and the US Federal Reserve were increasing the key rate many times since the pandemic the Bank of Japan kept its key rate almost at zero, as again it suggested the Japanese economy was just too weak to handle a rate increase and there were just too many potential side effects.

And yes Japan's fiscal health is always an issue whenever the Japanese government needs to increase spending to help the Japanese economy.

But the problem is the powers to be in Japan have used government spending for so long that it seems it feels there is no other way to help but to spend its way out of trouble.

Th problem is the powers to be in Japan know that its fiscal health is not the best and it has the highest debt to GDP ratio among advanced economies but feels it has to prioritize helping Japanese families and Japanese businesses over improving it fiscal health.

Have a nice day!

Japan Average Pay Up: Updated July 13, 2025

Japan's average pay ups over 5% for 2nd year in row amid price hikes

Article source:  https://mainichi.jp/english/articles/20250703/p2g/00m/0bu/065000c

Ideas

The article mentions or talks about Japanese companies, but wage growth for large companies might have been 5.25 on average but that doesn't mean small and mid-size companies got the same wage increases.

Up to 70 percent of the Japanese workforce works for small and mid-size companies which most likely didn't get 5.25 percent but probably much less.

With that 70 percent of the workforce has to continue to get less disposable income even more than the large companies employees.

Which again means less spending in the Japanese economy as the Japanese economy can't really grow if Japanese consumers don't feel good about their bonuses.

The per capita income of Japanese households is now one of the lowest among advanced economies when at one time was one of the highest.

An economy, as big as Japan's can't sustain itself with the levels of debt it has and the low leaves of spending due to a lack of needed wage increases.

Japan, if it isn't already, is about to become a country an economy of haves, the large companies, and the have-nots, the small and mid-size companies, with income inequality increasing every year.

Many small and mid-size companies just don't have the resources needed to give the same kind of wage increases as what large companies give.

If inflation being so rampant in Japan and hasn't lasted as long as it has maybe then the less than 5 percent wage increases that small and mid-size companies give might actually be enough to help 70 percent of the Japanese workforce and might actually begin to spend more in the Japanese economy.

As some articles have suggested not only are small and mid-size companies unable increase wages and they are unable to attract needed workers but some are beginning to file for bankruptcy as they can't find the workers they need to run their companies.

All economies need to see wage increases and it fuels consumer spending as consumers feel good about the extra income they get and then begin to spend more in an economy.

But the challenge is the Japanese economy has been down for so long it might take years for Japanese consumers to really feel good about their wage increase and finally begin to spend enough again to help the economy.

Again, just like large company workers, not all Japanese workers work for the unions in Japan and it might be about the same ratio of 30 percent, maybe less work for unions in Japan and up to 70 percent that don't work for unions in Japan which means again, small and mid-size company workers might have received much less in summer bonuses.

According to the latest estimate only about 16.5 percent of the Japanese workforce works for unions which means that up to 84 percent of the Japanese workforce might not have received a summer bonus the size that the union workers got.

So whatever the rest of the Japanese workforce got in summer bonuses, some Japanese consumers might save some if it, some might use it to pay bills, some might use it to go on summer trips and some spend some of it in the economy.

Finally the key is to get inflation to slow down or at trend downward so that Japanese consumers have more disposable income and to finally begin to feel good about how much they have left over and can begin to spend again to help the Japanese economy grow.

Japan can't completely rely on foreign tourism, which is at record levels to help the economy as it needs domestic consumers too to spend again to help grow the Japanese economy again.

Have a nice day!

Japan Household Spending: Updated Dec. 13, 2024.

 

Japan's household spending in October falls 1.3% amid rising prices

Article Source:  Article source deleted by mistake.

Ideas:
The Japanese economy can't grow much if Japanese household spending or consumer spending doesn't pick up, but that has always been a challenge in Japan.

Seasonal factors play a role in spending too, as the warmer weather might have delayed the buying of late fall or winter clothes in Japan.

Japanese wages, in April only increased but the challenge is inflation increasing almost every month so the the benefits from wage growth doesn't last very long.

Spending on food, for most households of two or more people, and with normal incomes is probably not that much, but for the low income groups,  30 percent of their income for food might be a little too much.

Consumer spending, for most, will look for substitutes, if the foods they usually like become to expensive or they become too elastic, meaning the price increase became too much and again, they look for substitutes such as chicken instead of pork or beef.

Perhaps some of the ingredients used in chocolate might have increased too much as chocolate producers had to pass-on the price increase onto the retailers or the consumers.

Again, seasonal weather, such as the record high temperatures that lasted into September and October had an affect on late fall and early winter clothes buying.

Most likely, as the price of materials needed for housing renovations increase, households either delayed renovations or decided not to do them at all, until maybe prices decrease.

As inflation continues in Japan, Japanese families might have decided to not sent their children to after school programs, as inflation has reduce their disposable income levels

Consumer spending in Japan has never been a strong indicator as in the US, as consumers in the US are more spenders while consumers in Japan are more savers.

Consumer spending might be half of Japan's gross domestic product, but it might not be enough to increase economic growth in Japan.

Real wages are wages adjusted for inflation and as inflation continues in Japan, the real value of wages in Japan is not very good as inflation seems to outpace wage growth.

Nominal wages are wages not adjusted for inflation but real wages are adjusted for inflation, which means a wage earners purchasing power could be reduced if inflation increases.

An increase of 0.9 percent might not even feel or be noticeable to wage earners as again inflation might actually reduce what could have been more than 0.9 percent increase.

Purchasing power is the real indicator for wage earners or anyone in an economy, as it indicates how much a consumer can spend in relation to inflation.

It seems consumer prices in Japan have been increasing ever since the pandemic and while they might be slowing from 2.9 percent to 2.6 percent, the average consumer might not feel any difference between 2.9 and 2.6.

Wage earners can get two bonuses per year, one in the spring/summer and one in late fall or early winter, which might make-up for the lower salaries in Japan compared to the US.

And yes, real wages are dependent on price increases or decreases, and if the trend continues, they might be decreasing some, but will consumers feel anything different.

This might seem like the situation in Japan is beginning to improve but Japan has a long way to go to get back to the advanced economy level as Japan has slipped a lot and is now more like a developing economy, without the economic growth.

But its a good start if these numbers continue to improve and maybe Japan can see some real economic growth which it hasn't seen since the asset-bubble crash of 1989.

Have a nice day!

Japan Inflation Slows: Updated Nov. 25, 2024.

 

Japan inflation slows in Oct. for 2nd month on energy subsidies

Article Source: https://mainichi.jp/english/articles/20241122/p2g/00m/0bu/004000c

Ideas:
Inflation might be slowing but its still a challenge for many Japanese households. And the 2 percent target set by the Bank of Japan is just a number, as Japanese households don't care what the number is its just that its high. 

The energy subsidies are needed and good, but of course its government spending and Japan has one of the highest government debt to GDP ratio in the advanced world.

The challenge is the Japanese government has spent a lot since the pandemic to help the Japanese economy but all of the spending might be considered government debt, which just increases the debt to GDP ratio.

One of the main challenges in the Japanese economy is that Japan is a resource-poor country which means it has to import which of what is needs, and if prices are high overseas, most likely they will be high in Japan too, and importers will pass-on their high import costs to the next in the supply chain.

And then add in the weak Japanese yen which also increases import prices too, so there is another layer of price increases that the domestic Japanese economy has to deal with.

If and when the Bank of Japan increases the key interest rate, it will not be that much, as the BOJ is concerned about how it will affect the overall Japanese economy.

The Bank of Japan might increase the key rate to 0.50 points which is still way below the US rate of 5.0 points which means the variance between the key rate and the Japanese rate still going to be significant which means the Japanese yen most likely will continue to be weak.

Most likely the Japanese economy might grow one quarter and show an annualized growth of 1.0 or even 2.0 percent, but is that going to be enough for the Bank of Japan to increase its key rate in the future.

Energy prices continue to increase as Japan has to import much of the energy it needs as it doesn't make or produce any energy in Japan, as its subject to global energy prices.

In years or decades past, Japanese companies including Japanese farmers, might not have passed-on their increased costs to the next in the supply chain including the final customer, but those days are long gone as most or many Japanese companies feel they have no choice now as their profits margins continue to shrink.

Previous articles have suggest there was enough rice on hand to overcome any shortages, but the problem was not a rice shortage but the hording of rice due to the Japanese governments advisory related to the possible earthquake in August.

And as usual anytime there becomes a shortage, companies will increase the price of a product, and in this case in supermarkets either by rice producers or the supermarkets themselves increased the price.

Once again, Japanese companies these days are increasing prices, or passing-on their energy and material costs to the next in the supply chain including the final customer, as their profits margins are getting thinner and thinner.

The service sector was hit hard by the pandemic and many either had to close or laid off a significant number of workers.

And then add in the so-called labor shortage in Japan now, as many services companies might be competing for the best talent possible and they need to pay wages maybe much more that what they are able to do, but need to do.

As a result they might be increasing their prices as a way to keep their profit margins at a normal level or as normal as possible.

Have a nice day!