–Weak Yen Continues Pushing Up Business Import Costs
–Producer Prices Up 0.2% M/M on Utilities, Fuels, Metals, Farm Produce
By Max Sato
(MaceNews) – Producer inflation in Japan continued accelerating to 2.9% in June, as expected, on firmer commodities markets, higher import costs aggravated by the weak yen and the lingering effects of a renewable energy charge hike and halved subsidies for electricity and natural gas that took effect the previous month, data released Wednesday by the Bank of Japan showed.
It followed a jump to 2.6% (revised up from 2.4%) in May from 1.2% (revised from 1.1%) in April.
The 40th straight year-over-year increase was led by a slight 0.1% rise in utilities, compared to a 7.2% drop in May and a 19.6% slump in April. It was also due to a hefty 19.4% gain in non-ferrous metals, which surged to 20.9% in May from 11.8% in April amid global supply concerns. Metal products and general machinery showed slightly faster gains.
The pace of increase remains the fastest since the 3.4% increase in August 2023, but far below the recent peak of 10.6% hit in December 2022. Prices for food and beverages have stabilized at the annual rate of just under 3% while those for transport equipment continued showing a smaller gain and lumber prices were still down.
The government halved subsidies for electricity and natural gas supplied to households and businesses in May that reflected in June utility bills. The price-cut program was terminated at the end of June consumption but the government has decided to revive a similar scheme for three months ending in October to help cushion an expected surge in utility costs during expected hot weather.
On the month, the corporate goods price index (CGPI) rose 0.2%, below the median forecast of a 0.4% rise and following a 0.7% rise in May. It has eased from the recent peak of the 1.6% rise reached in April 2022. The increase in June was led by utilities (electricity and natural gas), refined petroleum products (diesel, heavy fuels and gasoline), metal products and farm produce (pork, polished rice and chicken).
The CGPI’s import price index in yen terms rose 9.5% in June, which is the highest since the 15.0% rise in February 2023 and follows a 7.1% rise in May. In contract currencies, the index rose 0.3% after 14 months of decline including May’s 2.9% drop. The yen-based import cost increase peaked at 49.5% in July 2022.
The yen depreciated further to an average ¥157.82 against the dollar in May during Tokyo trading hours from ¥156.13 in May and ¥153.43 in April. 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.
This month, the dollar hit a fresh 38-year high above ¥161.70 in the absence of intervention by Japanese authorities. Earlier this year, it surged to a 34-year high of just above ¥160 on April 29 on expectations that interest rates in Japan were set to remain low while a U.S. rate cut was seen unlikely anytime soon, but stealth dollar-selling intervention by the Ministry of Finance pushed the U.S. currency briefly below ¥155. The MOF also quietly stepped into the forex market on May 2, when the dollar dipped to around ¥153 from ¥157.
In the June CGPI data, metal product prices rose 3.6% on year after rising 3.2% in May. The increase in the prices for general machinery also accelerated slightly to 3.0% from 2.8%. Those for chemicals rose 1.7% following a 0.8% rise.
Prices for lumber and wood products fell 2.1% from a year earlier for the 19th straight drop but the decrease moderated further from a 2.8% drop the previous month. Iron and steel prices were flat after dipping 0.1% the previous month.
Prices for foods and beverages — a category with a high weighting of 144.6 out of 10,000 for the domestic CGPI — rose 2.8% on the year after rising 3.3% in May. Those for transport equipment (150.9 weight) rose 1.6%, also easing slightly from a 1.8% gain the previous month. Prices for petroleum and coal products posted the 12th straight rise but the pace of increase also slowed to 4.5% from 6.9%.