Wall Street Times

Japan sees the highest inflation in 41 years

Image Source: Bloomberg

In November, Japan’s core consumer price inflation went up to 3.7%, which was the highest since 1981.

The price of energy went up because it was hard to make oil because of a crisis in the Middle East.

But after decades of trying to raise inflation, Japan’s consumers now have to deal with higher prices even though their wages have stayed the same.

To help its economy, the Bank of Japan (BOJ) has kept its extremely loose monetary policy in place until now.

But earlier this week, it surprised the market by raising the maximum interest rate on 10-year government bonds from 0.25 percent to 0.5 percent.

Because of this, the Japanese yen is worth more than the US dollar right now. Because of this, 151 yen equals one US dollar for the first time since 1990.

The war in Ukraine has made imports more expensive, which has led to the country’s high inflation. This is getting worse because the currency is weak.

Japan has one of the highest inflation rates in the world and has gone against the trend of other G7 countries, which have been gradually raising interest rates to stop prices from going up.

The annual inflation rate is 7.1% in the US, 11.1% in the EU, and 10.1% in the UK.

Prices hike in Japan

Because they lost so much money, my parents and many other people in the same situation will never be able to sell their house again or make improvements to it.

But people don’t spend as much money when the prices of everyday things don’t go up.

As a result, companies don’t raise wages, which makes prices and consumer demand fall even more. If you can’t get a pay raise, you don’t shop as much.

This slows the growth of a country’s economy as a whole. Japan has been stuck in this cycle for decades, which is sad.

Japan’s wealth didn’t change, but many other parts of Asia did. Japan’s GDP per person, which measures the country’s economic output per person, has stayed the same since the 1990s. But by 2010, China had overtaken it as the world’s second-largest economy.

The country’s central bank has tried for decades to boost growth by getting Japanese people to “spend more, invest more, wage goes up, and price goes up moderately at the same time,” says Nobuko Kobayashi, a partner with EY-Parthenon. But it hasn’t done very well yet.

The main way to measure consumer prices went up by 2.1% in April. This is enough for inflation to finally reach the Bank of Japan’s goal of 2% this year, after hardly changing for 30 years.

But the jump has nothing to do with how the economy at home is run. Instead, it has mostly been caused by higher import costs and a global rise in the prices of raw materials and energy, which was made worse by the pandemic and the war in Ukraine.

Even though wages haven’t gone up yet, Ms. Kobayashi says it could be “the start of bad inflation.” In fact, average salaries have been the same for over 30 years, so shopping is about to hurt.

After COVID, prices are going up and the cost of living is going up for many governments. Japan has had stable prices for decades, so this is a huge surprise.

When the price of umaibo, a common snack in Japan that has always cost 10 yen ($0.075 or £0.06), went up by 20%, it sent shockwaves through the country.

In a society that thinks people should share the burdens of life, raising prices has become a no-no.

So much so that the company that makes the popular snack Yaokin had to start an advertising campaign to explain why the price had to go up.

But it was bound to happen, and one thing at a time, prices have gone up for everything from mayonnaise to bottled drinks to beer. Teikoku databank says that prices for more than 10,000 different kinds of food will go up by an average of 13% this year.

Central Bank dilemma

Japan is in a tough spot right now. As prices around the world have gone up, central banks have slowly raised interest rates to control inflation. But the Bank of Japan has kept interest rates at an all-time low for years.

If there is a big difference between Japan’s interest rates and those of other major economies, like the US, the Japanese yen will fall by a lot. For example, the value of the yen against the dollar recently hit its lowest level in 20 years.

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When the value of the yen drops, the cost of imported goods, especially oil and gas, goes up.

The Japanese government has been trying to raise inflation in part to get wages to go up.

Mr. Niinami, the CEO of Suntory Holdings, which makes Japanese whiskies like Yamazaki, Hibiki, and Hakushu as well as beer and non-alcoholic drinks like bottled water and coffee, says that Japan needs to invest in new areas like green innovation or healthcare to boost the economy, create new jobs, and raise average salaries. He also wants the government to do more to bring investors from outside the country.

That will take time. Japan has been trying to solve many problems for decades, and making jobs is just one of them.

In the short term, the only good thing that could happen if the yen gets weaker is that more tourists from other countries will want to visit Japan and spend money there. But after Covid, the borders are just starting to open up again.