Japan’s wholesale inflation accelerated significantly in September 2024, despite slacking eased cost pressures from imported goods following a rebound in the yen. This dynamic poses a challenging situation for Japan to be in while battling inflationary pressures that are driven both by domestic and global causes.
Inflationary Pressures and Import Costs
The corporate goods price index-the primary indicator of what companies charge each other for goods and services-increased 2.8% in September over the same month last year, speeding up from the 2.6% increase recorded in August and mainly due to increases in some homegrown products, including rice, which have been hit by supply shortages due to poor weather conditions. While on the other hand, the appreciation of the yen did push down a 2.6% year on year in the yen-based import price index, which was a relief for companies relying on imported raw materials especially, energy and commodities.
Rebound in the Yen : The rebounding yen has helped curb the cost of imports, which had risen sharply because of the long period of currency depreciation. This is an important shift for Japan, given that many raw materials are imported. This has meant that less pressure has come from businesses to raise prices and that some of the inflationary worries have been smoothed out.
Resumption of Government Subsidies on Utilities : Resumption of government subsidies on utilities has also acted to stabilize costs.
The Bank of Japan’s View
The BOJ is closely keeping an eye on these trends. Long an issue concerning the point, Japan has always suffered from an inflation problem, and though BOJ did repeal the negative interest rate policy some months back this year, it still does not desire to raise further the rates. Core Consumer Inflation has been above 2% for over two years and touches 2.8% in August. However, for inflation not to be driven by material rising alone but by demand and wage growth, the BOJ intends to do so.
This would make other economists speculate that BOJ has one more rate hike scheduled by end year, considering that the wage increase and spending in Japan are still bolstering consumption.
On the other hand, it may also be influenced by international conditions. For example, whatever happens overseas, such as what the U.S. Federal Reserve will do, or geopolitical cases, such as the case in the Middle East, will have the same impact on the Japanese economic outlook through the commodity prices such as oil.
Prospects Beyond 2024
The economic trajectory for Japan going forward is unclear. Relief can be felt with the recent yen appreciation, but Japan has yet to find sustainable inflation and boost domestic demand, a task requiring more than just higher wages. However, balanced control over inflation and economic growth will heavily depend on the BOJ to achieve these goals.
Overall, auspicious and malign forces seem balanced, at least insofar as the Japanese economy is concerned. Import cost relief due to inflationary prices on yet another front has been somewhat of a respite though pressure through domestic factors, especially food inflation, remains. It is the conflicting pressures to be faced by the BOJ that will delineate how the economic landscape of Japan takes shape over the coming months.
