–Import Costs High as Yen Stayed Weak Before Firming on Stealth MOF Intervention at End-July, Fears of Faster BOJ Rate Hikes
—Producer Inflation Remains Below Recent Peak of 10.6% in December 2022
–Producer Prices Up 0.3% M/M on Utilities, Farm Produce, Summer Beverages, Cars
By Max Sato
(MaceNews) – Producer inflation in Japan continued accelerating to 3.0% in July, as expected, after the government ended its 18-month campaign to provide hefty subsidies for electricity and natural gas but the prices charged among firms are set to drift lower again as a similar scheme has been revived over the summer, data released Tuesday by the Bank of Japan showed.
It followed a 2.9% increase in June and a jump to 2.6% in May from 1.2% in April. The 42nd straight year-over-year increase was led by a 6.7% rise in utilities, following no change in June, a 7.2% drop in May and a 19.6% slump in April, as well as stabilizing flat costs for lumber/wood products and iron/steel – the two main factors that had driven business prices lower in reaction to the pandemic era spike triggered by the global supply chain breakdown that was made worse by heightened geopolitical risks.
Non-ferrous metals still grew 18.5% on year in July after surging 19.4% in June and 20.9% in May on concerns that the pickup in the world’s second-largest economy would cause shortages of copper and other metals. More recently, the prices for coper and other non-ferrous metals have turned softer amid growing fears that China’s uneven pickup will falter. Metal products and production/general machinery also showed slighter easing price pressures.
The pace of increase in overall prices charged between businesses remains the fastest since the 3.4% increase in August 2023, but far below the recent peak of 10.6% hit in December 2022. The prices for food and beverages have perked up again, above 4%, after showing stabilizing earlier below 3%, while those for transport equipment are steady between 1% and 2%.
The government discontinued subsidies for electricity and natural gas supplied to households and businesses in June, which was reflected in July bills, after halving them the previous month. Prime Minister Fumio Kishida reversed his decision as he saw voter approval rates dip from already low levels. Many people are unhappy with high living costs while the government is raising taxes to boost its military spending to cope with what it terms as a Chinese threat. He revived a similar scheme for three months ending in October to help cushion an expected surge in utility costs during Japan’s dangerously hot summer and warm autumn.
On the month, the corporate goods price index (CGPI) rose 0.3%, in line with the median forecast of a 0.3% rise and following increases of 0.2% in June and 0.7% in May. It has eased from the recent peak of the 1.6% rise reached in April 2022. The increase in July was led by utilities (electricity, natural gas) and farm produce (polished rice, pork, chicken eggs).as seen in the prior month. It was also driven higher by transport equipment (auto parts and passenger cars) and food/beverages (snacks).
The CGPI’s import price index in yen terms rose 10.8% in July, which remains the highest since the 15.0% rise in February 2023 and follows a 9.5% rise in June. In contract currencies, the index rose 1.6% after inching up a revised 0.5% in June and falling for the 14th consecutive month in May with a 2.9% drop (down 16.3% in July 2023). The yen-based import cost increase peaked at 49.5% in July 2022.
The yen depreciated further to an average ¥158.09 against the dollar in July during Tokyo trading hours from ¥157.82 in June and ¥156.13 in May. Last year, the yen’s relative strength in a range of ¥130 to ¥134 in the first four months of 2023 helped lower import costs, which slumped as much as 14.7% in yen terms in July 2023.
In August 2024, the yen has regained most of its lost ground for the year, quoted at around ¥147 on Monday, on market expectations that the BOJ was set to raise its short-term interest rate target more often than previously believed, although it would be still at a snail’s pace compared to other major economies. In July, the dollar hit a fresh 38-year high above ¥161.70 but it has eased to around ¥154 on stealth yen-buying invention on July 11 and 12 by the Ministry of Finance took advantage of the US CPI data for June that showed easing inflation. The data prompted some dollar selling on the notion that the Federal Reserve may lower interest rates in September.
In the July CGPI data, the prices for foods and beverages — a category with a high share of 14.5% of the domestic CGPI — rose 2.6% on the year after rising 2.7% in June. Those for transport equipment (15.1%) rose 1.3%, also easing slightly from a downwardly revised 1.4% gain the previous month. The prices for petroleum and coal products (5.3%) posted the 13th straight rise but the pace of their increase also moderated considerably to 1.1% from 4.6%.
Prices for lumber and wood products were nearly flat, down 0.1% from a year earlier for the 20th straight drop, moderating further from a 2.0% drop the previous month. Iron and steel prices were also flat after dipping 0.3% the previous month.
Metal product prices rose 3.1% on year after rising 3.8% in June. The increase in the prices for production machinery also eased to 2.9% from 3.9%. Meantime, general machinery accelerated slightly to 2.7% from 2.3%. Those for chemicals rose 2.5% following a 2.1% rise.