–BOJ’s Kuroda Committed to Easing Stance Despite Weak Yen, Seeing Slower Prices in FY23
By Max Sato
(MaceNews) – Producer inflation in Japan eased in May to 9.1% on the year as crude oil and non-ferrous metal prices fell from the previous month, reflecting recent international markets, but April’s 9.8% spike, although downwardly revised from 10.0%, is still a fresh 41-year high, as double-digit year-on-year gains continued for lumber, fuels, steel products and non-ferrous metals, data released Friday by the Bank of Japan showed.
Downstream, consumer inflation remains relatively tame in Japan as wage hikes are modest (falling in real terms) and companies are generally cautious about jacking up prices for fear of losing market share or dampening consumer spending. The core consumer price index, which excludes volatile fresh food prices, soared 2.1% from a year earlier in April after rising 0.8% in March but that’s largely because the base effects of sharp mobile phone user fee discounts from April 2021 have waned.
Energy and good costs continue climbing amid supply constraints and global reopening demand, but the Bank of Japan board projects inflation will average just under the bank’s 2% inflation target “temporarily” in the current fiscal year ending in March 2023 before slipping back to around 1% in the next fiscal year as the impact of surging commodities prices fades out.
BOJ Governor Haruhiko Kuroda withdrew his comments and apologized this week after saying in a speech on Monday that “Japanese households’ tolerance of price rises has been increasing” probably due to “forced savings” during the pandemic. The comments came under fire in social media as many households are feeling the pain of surging costs for daily necessities.
There are no signs that the bank will start unwinding monetary stimulus just because the yen has depreciated to a 20-year-low around Y134 to the dollar. Kuroda concluded the speech by promising that “the bank will take a strong stance on continuing with monetary easing, in that it will provide a macroeconomic environment where wages are likely to increase so that the rise in inflation expectations and changes in the tolerance of price rises — which have started to be seen recently — will lead to sustained inflation.”
The key points of domestic CGPI:
* The corporate goods price index (CGPI) rose 9.1% on the year in May, coming in much weaker than the median economist forecast of a 9.8% rise. It was the 15th consecutive gain after rising 9.8% (revised down from a preliminary 10.0%) in April, 9.3% in March and 9.4% in February. The 9.8% rise in April remains the highest since December 1980, when the index jumped 10.4% for the 14th straight month of double-digit percentage gains in the wake of the 1979 oil crisis triggered by the Iranian Revolution.
* BOJ has shifted the base year to 2020 from 2015 and updated the weights for the CGPI, which resulted in revisions to the recent data.
* The depreciation of the yen continues exerting upward pressure on already high import costs at producer levels, which also marked the 15th straight year-on-year rise. The increase in yen terms was larger at 43.3%, compared to 26.3% in contract currencies.
* The prices for petroleum and coal products rose 21.6% on year in May, decelerating from a 30.7% rise in April. The prices for iron and steel rose 29.8%, also slowing from a 30.5% rise the previous month while those for non-ferrous metals gained 16.6%, slower than a 24.6% increase in April. The prices for lumber and wood products remained elevated but continued easing slightly to a 56.1% increase in May from a 63.3% rise in April.