ShareTOKYO: Japan's central bank chief said on Friday the country will likely reach its key two-percent inflation target as oil rates surge, but the bank will continue monetary easing policies because the price rises are caused by external factors. The Bank of Japan has struggled to lift inflation for nearly a decade with the world's third-largest economy swinging between periods of sluggish inflation and deflation, both considered bad for growth.
"Unlike in the US and Europe, inflation is currently at around 0.6 percent, and is likely to rise to about two percent after April," BoJ governor Haruhiko Kuroda told reporters following a two-day policy meeting. "Most of the rise in prices will be caused by increases in international commodity supplies, energy, and food import prices, so naturally it is not necessary or appropriate to tighten monetary policy."
The United States Federal Reserve raised its benchmark interest rate on Wednesday for the first time since 2018 in a bid to tackle soaring inflation. Kuroda said consumption in Japan is expected to further recover from a pandemic dip as the government lifts restrictions-which mainly require restaurants and bars to limit opening hours-in Tokyo and elsewhere on Monday. Japan's core consumer prices, which exclude volatile fresh food, rose 0.6 percent in February from a year earlier, government data showed Friday. The internal affairs ministry said the rise was driven by food prices and utility bills due to a surge in energy costs linked to the Ukraine crisis.
It met market expectations as the sixth straight monthly gain, and the sharpest rise since February 2020. The BoJ's target of sustained two-percent inflation is seen as key to spurring healthy economic growth in Japan. But analysts say that even if the target is hit in the coming months, it is unlikely to last. "Once the energy-price shock and deterioration in terms of trade is gone, prices will decline again," Shigeto Nagai of Oxford Economics told AFP ahead of the BoJ meeting. Excluding energy prices as well as fresh food, Japan's consumer prices were down 1.0 percent in February, the 11th straight monthly fall, the ministry said.
Prices skyrocket
From rice balls to nappies, prices are rising in Japan. But unlike inflation seen in many other places, the increases are long-sought but also unlikely to last, analysts say. Since the 1990s, the country has swung between periods of sluggish inflation and deflation, where prices are falling-both considered bad for growth. The central bank has tried an array of policies including pushing interest rates to rock-bottom to encourage spending and reach a two-percent inflation target, seen as key to boosting prosperity in the world's third-largest economy.
It hasn't worked: in 2021, the price of goods, not including volatile fresh food, inched down by an average of 0.2 percent. But pandemic recovery demand, as well as a surge in oil and other commodities linked to the Ukraine war, may finally be achieving what the Bank of Japan couldn't. Major Japanese companies have started raising the price of goods in a previously unthinkable, and sometimes controversial, fashion. The maker of beloved children's corn snack Umaibo was even forced to apologize for the "commotion" caused by rumors ahead of a price rise amounting to two US cents, the first increase since its 1979 debut. Other hikes have also made headlines in a country where wages and prices have long been stagnant. The increases have been tough to make, according to Shigeto Nagai of Oxford Economics.
The so-called lost decades that followed Japan's 1980s boom have "cemented a deflationary mindset" among consumers, he told AFP. "People believe that wages and prices will not grow," and so companies fear losing ground to competitors if they price items higher, he explained. On a narrow, bustling street in eastern Tokyo, shopkeepers said they felt squeezed by a pandemic downturn and higher costs for essentials such as cooking oil, flour and fuel. But many prefer to absorb extra costs rather than pass them on.
"We have been in business for over 70 years... we are extremely close to our customers," said Satoshi Okubo, whose family shop sells sweets and chewy udon noodles. "For now, I am swallowing the increased costs," he told AFP. "We will only decide to increase our prices when it becomes absolutely necessary."
Shrinkflation
Some companies have instead opted to reduce the size of products while leaving the price unchanged, a move dubbed "shrinkflation". But this risks irritating customers like Masayuki Iwasa, 45, who since 2020 has documented shrinking goods and price increases on his website "Neage", which means "price hikes" in Japanese. "Some companies clearly say what they are doing, and others don't. If they announce what they are doing, I think customers would understand," he told AFP.
Despite the challenges, prices have been climbing in Japan since the autumn, albeit at nowhere near the blistering pace seen in Europe or the United States, where inflation recently hit a 40-year high of 7.9 percent. Core consumer prices, excluding fresh food, increased by 0.6 percent on-year in February, according to data released Friday, and some economists predict Japan could reach its two-percent inflation target in the coming months.
That level is "not sustainable" though, Nagai said, because it is driven by external factors and intensified by a weaker yen. One key to achieving longer-lasting price rises is wage increases, which for decades companies have kept low in part to avoid hiking the cost of products for consumers. Jobs once for life and laden with benefits have been swapped for cheaper part-time roles, often occupied by women, and even those with lifetime jobs have seen paltry pay rises. Prime Minister Fumio Kishida has made wage increases a central plank of his economic policy, calling for companies to lift salaries by three percent in annual spring wage negotiations.
Recent years have produced only marginal increases as trade unions prioritize job protection, however, and this year's first negotiations have been disappointing for Kishida and the unions. Nagai also warns that unexpected events such as the wave of the Omicron coronavirus variant could impact efforts to hike inflation. "We have been hoping for 'revenge consumption' by consumers (after pandemic restrictions), but many households have really experienced a sharp deterioration in real disposable income," he said. - AFP
