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Japan's inflation reaches 4%, its highest rate since 1981

2023-01-20T17:20:00.111Z


The data is announced two days after the Central Bank of Japan (BoJ) decided to keep its ultra-loose monetary policy intact.


Inflation in Japan accelerated in December to 4%, three tenths more than in November, according to data published this Friday by the Government.

This is the biggest rise in the cost of living in 41 years, fueling market expectations that Japan's central bank will phase out ultra-low interest rates.

However, the news comes two days after this entity decided to keep its ultra-expansionary monetary policy intact, contrary to the trend of its international peers, such as the US Federal Reserve or the European Central Bank, which have chosen to raise interest rates. to contain rising costs.

Although inflation of 4% is still below the high price levels that cause concern in Europe or the United States —in Spain, inflation for the last month of the year was 5.7%—, this doubles the 2% that the Bank of Japan set 2013 as the target for price stability.

That goal had been far from being reached until the Ukraine war-accelerated inflationary quake hit the planet.

Market analysts expected the general Consumer Price Index (CPI) to rise in December, which excludes fresh food as it is more volatile, but includes energy costs, after a year-on-year increase of 3.7% in November.

This is the fastest growth in year-on-year terms since December 1981, when it also stood at 4%.

It is also the ninth consecutive month that the CPI exceeds the 2% inflation target.

For its part, core inflation, which excludes both energy products and fresh food, increased by 3% compared to the previous year, also faster than the November index, the month in which it rose by 2. 8%

The main inflationary engine was energy prices, which rose by 15.2% year-to-year in December, up from 13.3% in November.

This Sunday marks a decade of the historic agreement between the Bank of Japan and the Government to keep the inflation target at 2%, which has fueled speculation that the measure could be reviewed in the spring, when there will be a change in the directive of the central bank.

However, doubts remain about whether wages will rise enough to offset the recent hit to consumption.

salaries

“The key is in wages.

If inflation stays around 2% and Japan sees a significant rise in wages, the central bank may normalize its monetary policy.

But if he considers that the rate at which they are raised is not adequate, he is very likely to remain impassive, ”says Yoshiki Shinke, chief economist at the Dai-ichi Life Research Institute.

This expert believes that inflation in Japan will remain above 2% until well into the fall.

Analysts agree that the comparative effect of the statistics will cause the rate of inflation to slow down at the end of the year, since the rebound experienced in 2022 will be taken as a base.

One sign that Japanese wages are still not keeping up with inflation is that the price of services rose only 0.8% year-on-year in December, a much slower pace than goods, which shot up to 7.1% compared to 2021. For Yasunari Ueno, chief market economist at Mizuho Securities, "the impact of the supply is behind the recent rise in inflation", for which, he considers, "it is difficult for the Bank of Japan will raise interest rates even as the new governor and deputy governor take office."

Haruhiko Kuroda will end his term in April after a decade at the helm of Japan's central bank.

The governor of the entity has been one of the main defenders of Japan's ultra-flexible strategy to combat deflation, such as applying official interest rates of 0% or buying a very high volume of public and private assets.

On Wednesday, the central bank chose to keep its ultra-expansionary monetary policy unchanged: it will keep the interest rate on short-term bonds at -0.1% and continue to apply its policy of controlling the yield curve of public debt, allowing the yield of the ten-year bonds to fluctuate in a maximum range of 0.5%.

Kuroda, who has reiterated in recent months that the country's economy is not capable of assimilating a rise in interest rates, has emphasized the need to maintain this strategy until wages rise, arguing that recent inflation is driven by higher prices for commodity prices, while Japan should aim for inflation to be fueled by strong domestic demand.

Japanese Prime Minister Fumio Kishida went so far as to show his concern about stagnant wages amid this wave of inflation in his New Year's speech to business leaders.

Some companies, such as Fast Retailing, Asia's largest clothing group and owner of Uniqlo, have already announced plans to overhaul their pay systems.

More than half of Japan's big firms plan to raise wages this year, according to a Reuters poll on Thursday, though smaller firms have less ability to do so.

Source: elparis

All business articles on 2023-01-20

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