I'm wondering why we haven't seen any significant acceleration in inflation in Japan yet? Both the weak yen and energy prices ought to have an impact. They certainly do already very visibly elsewhere (e.g. Europe, the US, emerging markets). But in Japan, inflation still seems to be very low. How come?
I'm aware of Japan's long deflationary (or low-flationary) history, companies‘ reluctance to raise prices, slow salary increases. But what I don't quite understand is how both the effects of high energy prices - and Japan is a major energy importer - and the weak yen can somehow just disappear in domestic prices.
Any explanation as to who has so far “taken on” this external price shock so that domestic price levels could stay so extraordinarily stable? And any sense on when this might change?
Because currently government is capping the energy prices with subsidies. An election in July to secure Kishida's party and a supplementary budget just announced will send any end of the subsidies away in the near future.
Richard; As you know, it is the BoJ not the MoF who can intervene in currency markets and Kuroda still isn’t showing any indication of doing so, choosing to stick with his “windmill” of inflation targeting. As long as the US-Japan rate spread continues to widen and Japan’s balance of payments are dipping to deficit (because of energy prices), the momentum is still strongly in favor of weak yen. One turning point may be a breakthrough in the Ukraine war, although a clear defeat of Russia may unleash its own can of worms.
Darrel, the BOJ executes the intervention, but does so on behalf of the MOF. It is the MOF which makes the policy decision. The same is true of the US Treasury and Fed. I agree with the rest, but who knows what impact a Russian defeat might have.
Also, balance of payment is flow data, a temperate negative dip probably(income balance is positive and is dominating the BOP), from stock point of view, Japanese is still the biggest creditor in the world.
Yes it’s technically the MoF’s call, but the MoF itself needs the tacit approval of G7 and needs a coordinated response from at least the US for it to be anything more than just spitting in the wind.
I agree although I wouldn't say the MOF's call is only technical. The MOF can do it anytime it wants to. However, I agree that, for it to be at all effective, the market has to perceive that Japan is not acting alone. Even then, it only works when the currency has gone way of whack and that is not the case today.
Enlightening post once again, thank you!
I'm wondering why we haven't seen any significant acceleration in inflation in Japan yet? Both the weak yen and energy prices ought to have an impact. They certainly do already very visibly elsewhere (e.g. Europe, the US, emerging markets). But in Japan, inflation still seems to be very low. How come?
I'm aware of Japan's long deflationary (or low-flationary) history, companies‘ reluctance to raise prices, slow salary increases. But what I don't quite understand is how both the effects of high energy prices - and Japan is a major energy importer - and the weak yen can somehow just disappear in domestic prices.
Any explanation as to who has so far “taken on” this external price shock so that domestic price levels could stay so extraordinarily stable? And any sense on when this might change?
i've not had a chance to look at this yet because I've got to get my book manuscript into the publisher, but when I do, I'll post something.
Very nice, I'm looking forward :)! And all the best for your book manuscript, that takes precedence of course!
Because currently government is capping the energy prices with subsidies. An election in July to secure Kishida's party and a supplementary budget just announced will send any end of the subsidies away in the near future.
Richard; As you know, it is the BoJ not the MoF who can intervene in currency markets and Kuroda still isn’t showing any indication of doing so, choosing to stick with his “windmill” of inflation targeting. As long as the US-Japan rate spread continues to widen and Japan’s balance of payments are dipping to deficit (because of energy prices), the momentum is still strongly in favor of weak yen. One turning point may be a breakthrough in the Ukraine war, although a clear defeat of Russia may unleash its own can of worms.
Darrel, the BOJ executes the intervention, but does so on behalf of the MOF. It is the MOF which makes the policy decision. The same is true of the US Treasury and Fed. I agree with the rest, but who knows what impact a Russian defeat might have.
Also, balance of payment is flow data, a temperate negative dip probably(income balance is positive and is dominating the BOP), from stock point of view, Japanese is still the biggest creditor in the world.
Yes it’s technically the MoF’s call, but the MoF itself needs the tacit approval of G7 and needs a coordinated response from at least the US for it to be anything more than just spitting in the wind.
I agree although I wouldn't say the MOF's call is only technical. The MOF can do it anytime it wants to. However, I agree that, for it to be at all effective, the market has to perceive that Japan is not acting alone. Even then, it only works when the currency has gone way of whack and that is not the case today.