Inflation does damage to Japan, hits the yen.  BOJ's Kuroda clings by his last fingernail to 'Transitory'

Inflation does damage to Japan, hits the yen. BOJ’s Kuroda clings by his last fingernail to ‘Transitory’

But it will be released in April.

By Wolf Richter for WOLF STREET.

Bank of Japan Governor Haruhiko Kuroda, the architect of Japan’s mad money-printing spree under the economic religion of Abenomics that began in 2012, will leave the BOJ at the end of his term in April 2023. He won’t turn his interest rate policy around because it’s been his baby for 10 years, no matter what happens to inflation, and it’ll be up to the next person to deal with of this mess. And it’s starting to get messy.

Japan “core” consumer price index for all items less fresh food – which the BOJ uses for its inflation targeting – jumped 0.6% in October from September, data from the Japan Bureau of Statistics showed today. This equates to 7.4% annualized. The 0.6% jump was the worst month-over-month jump since the consumption tax hike in April 2014; and beyond, since May 2008; and beyond, since the consumption tax hike in April 1997.

On an annual basis, the “core” CPI jumped to 3.6%, the worst since 1982, even exceeding all consumption tax hikes. The purple line indicates the BOJ’s inflation target. As inflation exceeded that target in April, the BOJ was steadfast in keeping its short-term policy rate at -0.1% and its 10-year yield rate at 0.25%, which is simply mad.

Kuroda, seeing the peak in core CPI, said today it was rising ‘quite enough’, and clinging to the ‘transitional’ theory with his last fingernail, he said it would fall below by 2% over the next fiscal year, which begins in April, as the impact of fuel and raw material prices fades. But as we’ll see in a moment, inflation has already transcended fuel and commodities and has spread deep into the economy.

The CPI of all items jumped 0.6% month-on-month and 3.7% year-on-year, corresponding to the consumption tax peak in May 2014, and above, this was the worst increase since 1990:

The end of the era of true price stability.

Inflation is particularly insidious in Japan where something like true price stability has prevailed for 23 years, where bouts of inflation have been followed by prolonged mild deflation, where prices have generally remained roughly stable for 23 years. People, society and the economy are totally unprepared to deal with inflation.

During this period, the consumer price index for all items – as an index value reflecting price levels, not year-to-year change – has been relatively stable. After the consumption tax hike in 1997, the index stabilized at around 99. Over the next 13 years, the index then fell by a total of 5%, then rose again, reaching 100 in 2018, and remained there until roughly the end of 2021, when inflation took off.

Some of the main categories of inflation.

  • Food: +6.2% over one year: fresh products +8.1%; fish and seafood (essential in Japanese cuisine) +13.9%; fresh vegetables + 6.7%.
  • Energy: gasoline, electricity, piped gas to the home, propane, kerosene: +15.2%.
  • Household itemssuch as furniture, household appliances, utensils, bedding: +6.9%.
  • Reimbursed and maintenance: +6.9%
  • Communication: +5.6%
  • Clothes and shoes: +2.5%
  • Lease: 0% (good)

Governments limit inflation with categories they control.

  • Health care inflation: In this universal health care system, the government largely decides what consumers should pay:
    • Medical care: +0.2%
    • Medicines: +1.3%
    • Medical supplies and devices: +0.1%
    • Medical benefits: -0.3%
  • Public transport: +0.3%
  • Education: +0.7%
  • Water and sewer charges: -3.4%.

BOJ buys yen to support it, after being beaten by BOJ inflation policy.

In mid-September, when the yen was in freefall against the USD, the BOJ initiated periodic selling of dollars and buying of yen to support the currency in this way, instead of raising its limits. interest rates to control inflation, which solves the problem of the yen.

A plummeting yen makes imports of all kinds more expensive, not only raw materials, foodstuffs and energy, but also consumer products and components for manufacturers.

While the fall in the yen has helped translate Japanese companies’ foreign currency earnings from overseas sales to higher yen figures, it has had no real impact on revenues from products that Japanese companies make overseas. overseas and sell overseas, such as automakers who all have factories in the United States, Mexico, China and Europe. And a lot of what they sell in those markets is made in those markets, not in Japan. A weaker yen doesn’t actually help these manufacturers, but it does allow them to translate their dollar, euro, renminbi and peso sales into the more collapsed yen, which looks better in yen.

But they are moaning about the rising costs of the products they sell in Japan.

In January 2021, it took about ¥104 to buy $1. Last month, it took more than 150 yen to buy $1. Today it was 140 yen to the dollar. The sharp declines over the past two months are likely the result of BOJ interventions:

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