JAPAN’S INFLATION HIGHEST IN MORE THAN 30 YEARS IN SEPTEMBER

Japan’s consumer prices, excluding those for fresh food, grew last month by 3 percent, year over year, the most at any time since 1991, aside from a blip in 2014 when sales taxes rose, Bloomberg reported.

Energy prices drove the increase, although costs of processed foods and household durable goods added pressures also.

Prices on about 6,700 food items went up already in October, the Teikoku Database noted.

So far this year, more than 20,000 food items have risen in price, adding the equivalent of about $466 to annual household grocery bills, Bloomberg calculated.

Meanwhile, workers have lost about 1.7 percent in purchasing power in the past 12 months, according to government figures.

The sharp increase in living costs casts doubt on the Bank of Japan’s (BoJ’s) insistence that interest rates must remain low to stimulate the economy, Bloomberg noted.

“In October, inflation may reach 3.3 or 3.4 percent as many food prices are going up, mobile phone fees, and service prices are rising,” economist Mary Iwashita at Daiwa Securities, told Bloomberg.

“The BoJ seems to focus on downside risks overseas to conclude that it will need to keep up monetary easing,” she said. “It strikes me that they have already made the decision to maintain easing.” 

The central bank has clung to its key interest rate of 2.25 percent, despite the yen’s plunge in value against the dollar, which we detailed in “Yen Sinks to 20-Year Low Against the Dollar, Stocks Tumble” (14 Jun 2022) and “Yen Sinks to Lowest Value in 32 Years” (18 Oct 2022).

On 20 October, the yen’s value sank below ¥150 to the dollar, alerting investors that another government intervention to pull up the currency’s value might be close at hand.

The yen’s weakness is becoming more and more intolerable and the government’s resources to jack up its worth are “endless,” Masato Kanda, Japan’s chief currency official, told reporters last week.

The yen was languishing at ¥149.02 to the dollar at the end of trading on Monday.

TRENDPOST: As we noted in “Bank of Japan Intervenes to Prop Up Yen” (27 Sep 2022), Japan’s central bank is walking a thin line. The country’s population is among the world’s oldest, leaving millions of citizens on fixed incomes vulnerable to rising interest rates. However, inflation creates an equal vulnerability: Japan imports most of its raw materials, including fossil fuels, which must be paid for in dollars. 

As prices rise and Japan must spend more yen to buy dollars to pay its bills, the yen’s value will continue to sink.

Despite the Bank of Japan expected to raise its inflation forecasts on Friday, we maintain our forecast that despite the yen falling to a fresh 32-year low, they keep ultra-low interest rates as long as possible to coddle the softening domestic economy… and wait for inflation to be brought down with hopes the hostilities in Ukraine end, consumers solve inflation by slashing spending… and the U.S. slows its interest rate hikes.