Inflation in Japan accelerated to 4% in December, three-tenths more than in November, according to data released by the government this Friday. This is the biggest rise in the cost of living in 41 years, fueling market expectations that the Bank of Japan will phase out ultra-low interest rates. However, the news comes two days after this company decided to maintain its ultra-accommodative monetary policy, bucking the trend of its international peers like the US Federal Reserve or the European Central Bank, who decided to hike interest rates. contain rising costs.
Although inflation of 4% is still below the high price levels that are a cause for concern in Europe or the United States – Spain had inflation for the last month of the year at 5.7% – this doubles the 2% set by the Bank of Japan in 2013 as a target for price stability. This goal was far from being achieved until the inflationary quake accelerated by the war in Ukraine hit the planet.
Market analysts were expecting the December CPI, which excludes fresh groceries as it is more volatile but includes energy costs, to rise in December after a 3.7% yoy rise in November. This is the fastest year-on-year growth since December 1981, when it was also 4%. It is also the ninth straight month that the CPI has exceeded the 2% inflation target.
For its part, core inflation, which excludes both energy products and fresh food, rose 3% yoy, also faster than the November index, which saw it rise 2.8%. The main driver of inflation was energy prices, which rose 15.2% yoy in December, up from 13.3% in November.
This Sunday marks a decade of the historic agreement between the Bank of Japan and the government to keep the inflation target at 2%, which has fueled speculation that the measure could be reviewed in the spring when there will be a change in Japan’s policy central bank. However, doubts remain as to whether wages will rise enough to offset the recent fall in consumption.
wages
“The key lies in wages. If inflation stays around 2% and Japan sees a significant rise in wages, the central bank could normalize monetary policy. But if he doesn’t think the rate at which they’re being increased is appropriate, he’s very likely to remain unmoved,” says Yoshiki Shinke, chief economist at the Dai-ichi Life Research Institute. This expert expects inflation in Japan to remain above 2% well into the autumn. Analysts agree that the comparative effect of the statistics will cause the inflation rate to slow down at the end of the year, as the rebound experienced in 2022 is taken as a base.
A sign that Japanese wages are still not keeping pace with inflation is that prices for services rose just 0.8% year-on-year in December, a much slower pace than goods compared to 2021 increased to 7.1%. For Yasunari Ueno , chief market economist at Mizuho Securities, “the impact of supply is behind the recent rise in inflation,” because he believes “it is difficult for the Bank of Japan, even as the new governor and deputy governor, to keep interest rates up rise to office.”
Haruhiko Kuroda will retire in April after a decade at the helm of Japan’s central bank. The entity’s governor was one of the main defenders of Japan’s extremely flexible anti-deflation strategy, such as B. Applying official interest rates of 0% or buying a very large volume of public and private assets.
On Wednesday, the central bank decided to keep its ultra-accommodative monetary policy unchanged: it will leave the interest rate on short-term bonds at -0.1% and continue its policy of controlling the government debt yield curve in order to allow yields on ten-year bonds to remain within a maximum range 0.5% fluctuate. Kuroda, who has reiterated in recent months that the country’s economy is unable to sustain a rise in interest rates, has stressed the need to maintain this strategy until wages rise, arguing that recent inflation has been fueled by higher prices for commodity prices, while Japan should aim for inflation to be fueled by strong domestic demand.
Japanese Prime Minister Fumio Kishida went so far as to express concerns about stagnant wages amid this wave of inflation in his New Year’s address to business leaders. Some companies, like Fast Retailing, Asia’s largest clothing group and owner of Uniqlo, have already announced plans to overhaul their payment systems. More than half of Japan’s big companies plan to raise wages this year, according to a Portal poll on Thursday, although smaller companies are less able to do so.
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