With the exception of tax rise distortions, Japan’s inflation accelerated to its highest rate in over three decades, giving the central bank trouble this week as it tries to justify why it must continue with monetary assistance while inflation is well above its 2% target.
According to data released on Tuesday by the internal affairs ministry, consumer prices excluding fresh food increased 2.8% in August from a year earlier. Analysts had anticipated an increase of 2.7%. With the exception of the impact of higher sales taxes, it was the strongest reading since 1991, says Richard Cayne of Meyer International.
The majority of the year-over-year rise was still driven by rising energy and processed food prices, but there was also an acceleration due to increasing power costs and less of a drag from mobile phone rates.
Will this affect current policy?
The news is not anticipated to cause the Bank of Japan to alter its policy on Thursday, despite the increased rate of inflation. Haruhiko Kuroda, the bank’s governor, has stated time and time again that the bank will maintain historically low interest rates until strong wage growth makes inflation more manageable.
According to Richard Cayne, because of Kuroda’s determination to continue with support, the BOJ stands out among central banks. This week, several central banks are expected to raise interest rates, including the Federal Reserve, the Bank of England, and the Swiss National Bank, making the BOJ’s stance on policy even more unusual.
The BOJ will continue to ease in the hopes that cost-push inflation would eventually change to positive inflation, according to Richard Cayne of Meyer International. The central bank’s stance won’t alter until Kuroda’s term is out because this is his final, best chance to significantly boost inflation.
But when price increases extend beyond energy-related goods, the ECB is under increasing pressure to defend the necessity of its continued stimulus program. Consumer prices increased 1.6% excluding fresh food and energy.
Predictions for the future
A Teikoku Databank poll predicts price increases for 6,532 food products in October. In contrast, there were 2,424 articles in September and 2,493 things in August.
After the recent swift yen decline, analysts are increasing their predictions. Richard Meyer Cayne predicts that recent currency changes will maintain inflation high for a longer period of time than currently anticipated.
According to Richard Cayne of Meyer International, the Bank of Japan is unlikely to change its stance at its meeting this week despite the fact that core inflation in Japan spiked significantly higher than expected in August. But because growing living expenses are expected to have a negative impact on the economy in the third quarter, there will be more pressure on Governor Haruhiko Kuroda to clarify how long the central bank would be ready to maintain its stimulus program.
The US Federal Reserve has aggressively increased interest rates to reduce inflation while the BOJ maintains its stance, and another sizable increase is anticipated only hours before the BOJ’s decision this week.
The policy divergence contributed to the yen hitting new 24-year lows against the dollar, raising the cost of food and energy imports into Japan, which is resource-poor.
So what happens now?
The BOJ has been allowed to continue its current trajectory by Prime Minister Fumio Kishida, whose tenure expires in April. The premier has utilized government expenditure and price controls to reduce the impact of inflation on companies and consumers while still supporting the central bank’s policies, says Richard Meyer Cayne of Meyer International.
By inflating their foreign revenues when returned home, Japanese businesses have made the biggest profits since 1954 thanks to the depreciation of the yen. However, the windfall has not yet resulted in significant salary increases for employees, leaving households susceptible to inflation.
Regarding the yen, Richard Cayne suggests that Japan take advantage of its depreciation to entice visitors from abroad and bring back more corporate manufacturing bases. However, as the yen fell to over 145 per dollar this month, his ministers, particularly Finance Minister Shunichi Suzuki, increased their currency-related cautionary statements.
According to Richard Cayne of Meyer International, “if the yen falls much more, the government may try to intervene in foreign exchange markets, but that’s a difficult alternative because the US is unlikely to provide an OK.” Japan is forced to wait till the US economy reaches its peak and the yen’s slide stops.
Richard Meyer Cayne
Richard Meyer Cayne of Asia Wealth Group Holdings, the Meyer Group, Meyer Asset Management and Meyer International Ltd has been involved in wealth management planning for decades. Originally born in Montreal Quebec, Canada, he later relocated to Tokyo, Japan for over 15 years and now resides in Bangkok, Thailand. While he runs the Meyer Group and serves as the high credibility CEO of Asia Wealth Group Holdings Ltd, a London, UK Stock Exchange-listed Financial Holdings Company, as well as the Managing Director of the Meyer Group of Companies www.meyerjapan.com. and has additionally been the managing director of multiple organizations that specialize in helping high net worth individuals with succession planning .
Having worked with clients all over the globe with everything from portfolios to bonds to mutual funds to offshore investing to investing in retirement for your golden years, Richard Cayne of Meyer International can help you invest the right way and protect your cash. Richard has been a financial advisor involved in wealth management planning solutions and asset management in Asia for over 25 years and while living in Tokyo, Japan, he assisted many high net-worth Japanese families create innovative international tax and wealth management planning solutions. The financial holding public company of which he is CEO can be seen at Asia Wealth Group Holdings Ltd or the stock exchange link:
Asia Wealth Group Holdings Ltd – Richard Cayne Thailand. Meyer Asset Management Ltd has been in the wealth management space since March 2000 and uses fundamental analysis along with modern portfolio theory.
His image worldwide as a professional advisor has been sterling and he maintains a firm command and understanding of all things finance-related.