TOKYO – Tokyo’s inflation has outpaced forecasts to hit its fastest clip since 1982, an acceleration that suggests nationwide price growth will also quicken in November after months of yen weakness and elevated energy costs.
Consumer prices, excluding fresh food, rose 3.6 per cent in the Japanese capital in November, with the faster pace driven by further gains in processed food prices, according to data released on Friday. The reading was the highest since April 1982 and stronger than a 3.5 per cent forecast by analysts.
The continued acceleration in core inflation challenges Bank of Japan (BOJ) governor Haruhiko Kuroda’s view that the current cost-push inflation is only temporary and that continued stimulus is required to ensure price growth becomes sustainable.
With gains in energy costs likely to ease as ramped-up government subsidies come into effect in the coming months, economists largely agree with Mr Kuroda that Japan’s inflation will soften, although views differ over the extent.
This means the BOJ is likely to stick with its rock-bottom interest rates during the remainder of Mr Kuroda’s term. Market speculation is largely focused on what will happen after the governor departs in April.
“Given what the BOJ has said and its current inflation forecasts, I don’t think monetary policy will change in fiscal 2022,” said SMBC Nikko Securities chief economist Yoshimasa Maruyama. “But if the new governor is pressured by the government over the weak yen, the BOJ could still move on policy (in fiscal 2023).”
The Tokyo figures showed that processed food prices rose 6.7 per cent in November, contributing about 1.4 percentage point to overall inflation and outstripping the impact of energy. Much of that food, including raw materials, is imported and therefore directly impacted by the yen’s weakness.
Some 833 food items, including dairy products, saw price increases in November, according to a Teikoku Databank survey. The report also forecast that Japan will be hit by another wave of price hikes in February or March next year, with the costs of another 2,000 items expected to go up.
Real wages have been declining since April, adding to factors eating into consumers’ purchasing power and contributing to BOJ fears that a premature increase in interest rates could upend the economy.
To cushion the blow to consumption from rising prices, Prime Minister Fumio Kishida put together an economic stimulus package last month, partially funded by an extra budget worth 29.1 trillion yen (S$288 billion).
Despite the continued acceleration of inflation and the historic slide in the yen, the government has not put pressure on the BOJ to adjust policy so far. Instead, when the Japanese currency neared 152 per United States dollar in October, the government spent 6.3 trillion yen to intervene in the market.
Since then, with expectations rising over a slowing of US Federal Reserve rate hikes, the yen has strengthened to around the 138.8 mark, a factor that could also help stabilise prices in Japan going ahead, though any positive impact on prices is likely to come with a lag.
In the meantime, policymakers, investors and economists will be keeping a close eye on the annual round of pay deals early next year. “If the spring wage negotiations go well, there will be more space to shift policy next year compared with this year,” Mr Maruyama said. BLOOMBERG