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?
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.
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?
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.