Inflation comes to Japan, amid a weaker yen and support for inflation. Bank of Japan calls it “transitional”, puts the yen under the bus

Japanese people are not amused.

Written by Wolf Richter for WOLF STREET:

Well, here we are. The overall CPI for all items in Japan jumped 0.4% in April from March, the third consecutive month, up 0.4% (4.8% annually), and 2.5% from a year ago, up from an increase of 1.2. % in the previous month, the Japanese Statistics Bureau reported today.

Japanese people are not amused.

Food prices jumped 4.0% year-over-year, including fresh foods (+12.2%), driven by the critically important categories of fresh seafood (+12.1%) and fresh vegetables (+12.2%).

“Fuel, light and water charges” increased 15.7% year over year, including electricity (+21%), gas for the home (+17.5%) and “fuel and other light” (+26.1%).

Prices of durable household goods, such as furnishings and appliances, jumped 5%.

Price wars now over amid wireless carriers still weigh on overall inflation: The ‘connections’ index is down 10.9% year over year, but those price wars peaked last year, with the biggest monthly drop in April 2021 (-24% from March ). The annual decline peaked at more than 34% in December. Recent changes from month to month indicate price stability. From now on, the downward pressure of this category on the overall price index will dissipate, and further price increases could continue for the day.

Wholesale hypertrophy explodes. On Monday, Japan’s wholesale price index for April was released, rising 10%, the worst jump in at least 40 years, as inflationary pressures build up in the pipeline.

Inflation support, of course. The government has passed a series of inflation relief packages, including one-time cash grants of 50,000 yen ($391) per child to low-income families to help them pay higher prices.

Inflation subsidies also include cash payments to wholesalers and distributors of gasoline until they lower the price of gasoline, which would lower the retail price of gasoline and thus the inflation index of gasoline prices. The amount of support is adjusted weekly.

Supporting wholesalers is a neat move because it lowers the retail price of gasoline, and thus the inflation index, making the overall CPI look less bad. These subsidies to wholesalers have been in effect since early this year, and the inflation index would look worse without them.

The government has largely decided to “inflate” health care: put pressure on it. Health insurance and Medicare in the United States are huge budget items for Americans, and inflation has been rampant. This is not the case in Japan, which has a state health insurance system of universal coverage, funded by taxes and individual contributions. Registration is required, either on an employment or residency basis. The amounts that the Japanese pay directly to health care (co-payers, etc.) are small, compared to what Americans pay. The government sets out many of the costs consumers face.

So, yes, the “Medical Services” price index fell 1.8% year over year in April, the biggest drop in years. The “Medications and Health Promotion” index rose 1.2% year-over-year. The “Medical Supplies & Devices” index fell 0.3% year on year.

Core Inflation Index – “All non-fresh food” in Japan jumped 0.4% in April from March, after jumping 0.5% in March, and by 0.4% in February (averaging 5.2% annually). On an annual basis, it jumped 2.1%.

Bank of Japan: It’s just passing by, throwing the yen under the bus.

The “all items minus fresh food” index is the measure the Bank of Japan uses to target the 2.0% inflation – or as it’s called, the “price stability target”. For years, the Bank of Japan justified the ritual of printing money on the grounds that the measure was often less than 2%. And when it crossed 2%, the Bank of Japan screwed it up with what it calls its “commitment to hyperinflation”. “With this commitment, the bank aims to enhance the credibility of achieving the 2 percent price stability target among the public,” she says.

So, in proper form, the BoJ was blowing inflationary pressures, and was saying, in the best way to imitate Powell, that these pressures were “temporary”.

“There is no need to tighten monetary policy in response to a transitional trend, as opposed to an ongoing one,” Bank of Japan President Haruhiko Kuroda told a nervous parliament in April.

The yen has fallen all year long (excluding rebounds in the past few days)And Where does part of that inflationary pressure come from, as the depreciation of the yen’s exchange rate against the dollar makes imported goods and raw materials, including food and energy, much more expensive.

The yen fell against the dollar because the Bank of Japan refused to budge on its negative policy rate and yield curve control, even as the Federal Reserve now grapples with inflation and US yields soared higher. Due to the recklessness of the BoJ, the yen paid the price, and the Bank of Japan subsequently contributed to import inflation.

But on credit and for all its endless rhetoric about the stamp of money, the Bank of Japan effectively ended its aggressive program of buying government bonds at the end of 2020, and its holdings of Japanese government securities peaked in February 2021.

That remains the peak, despite the recent bout of bond buying, as part of yield curve control, to try to pull back from the 10-year yield that threatened to exceed the BoJ’s upper limit of 0.25%. So Japanese government bond holdings rose in April but remained well below their February peak.

Enjoy reading WOLF STREET and want to support it? Use ad blockers – I totally understand why – but would you like to support the site? You can donate. I appreciate it very much. Click on a mug of beer and iced tea to learn how to do it:

Would you like to be notified by email when WOLF STREET publishes a new article? Register here.

Leave a Comment