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Business Times
3 days ago
- Business
- Business Times
Japan's wholesale inflation slows, taking pressure off BOJ
[TOKYO] Japan's annual wholesale inflation slowed in May on falling import costs for raw materials, data showed on Wednesday, taking some pressure off the central bank to raise interest rates. But the rise in wholesale prices for food and beverages gathered pace in May in a sign global uncertainties and soft consumption are not discouraging firms to pass on higher costs. The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, rose 3.2 per cent in May from a year earlier, data showed, falling short of a median market forecast for a 3.5 per cent gain. It followed a revised 4.1 per cent increase in April and marked the slowest year-on-year rise since a 3.1 per cent gain in September. 'As wholesale inflation slows, consumer prices will also come under downward pressure with a lag,' said Masato Koike, senior economist at Sompo Institute Plus. 'The BOJ may have lost the opportunity to raise interest rates because inflation will have slowed significantly by the time the fog hanging over Japan's tariff talks (with the US) clears,' he said. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Prices of steel goods fell 4.8 per cent and those of chemical products were down 3.1 per cent, while non-ferrous metals products saw prices slide 2.1 per cent, the data showed. The yen-based import price index fell 10.3 per cent in May from a year earlier after a 7.3 per cent drop in April, indicating the currency's rebound was pushing down raw material import costs. By contrast, prices of food and beverages rose 4.2 per cent in May, accelerating from a 4.0 per cent increase in April in a sign of simmering inflationary pressure, the data showed. Japan is struggling to reach a deal with Washington in tariff negotiations, clouding the outlook for its economy, which is heavily reliant on automobile shipments to the US. The uncertainty over US trade policy forced the BOJ to cut its growth forecasts on May 1, suggesting the timing of its next rate hike may be delayed despite steadily rising inflation. Japan's core consumer inflation hit 3.5 per cent in April, marking the fastest annual pace in more than two years and exceeding the BOJ's 2 per cent target for more than three years, due largely to a surge in food costs. While the BOJ expects food inflation to moderate later this year, it has signaled its readiness to raise rates again once the economy resumes a recovery on solid wage gains. The BOJ ended a decade-long stimulus programme last year and in January raised interest rates to 0.5 per cent on the view Japan was on the cusp of durably hitting its 2 per cent inflation target. A Reuters poll, taken on May 7-13, showed most economists expect the BOJ to hold rates steady through September with a small majority forecasting a hike by year-end. REUTERS
CNA
3 days ago
- Business
- CNA
Japan wholesale inflation slows, taking pressure off BOJ
TOKYO :Japan's annual wholesale inflation slowed in May on falling import costs for raw materials, data showed on Wednesday, taking some pressure off the central bank to raise interest rates. But the rise in wholesale prices for food and beverages gathered pace in May in a sign global uncertainties and soft consumption are not discouraging firms to pass on higher costs. The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, rose 3.2 per cent in May from a year earlier, data showed, falling short of a median market forecast for a 3.5 per cent gain. It followed a revised 4.1 per cent increase in April and marked the slowest year-on-year rise since a 3.1 per cent gain in September. "As wholesale inflation slows, consumer prices will also come under downward pressure with a lag," said Masato Koike, senior economist at Sompo Institute Plus. "The BOJ may have lost the opportunity to raise interest rates because inflation will have slowed significantly by the time the fog hanging over Japan's tariff talks (with the U.S.) clears," he said. Prices of steel goods fell 4.8 per cent and those of chemical products were down 3.1 per cent, while non-ferrous metals products saw prices slide 2.1 per cent, the data showed. The yen-based import price index fell 10.3 per cent in May from a year earlier after a 7.3 per cent drop in April, indicating the currency's rebound was pushing down raw material import costs. By contrast, prices of food and beverages rose 4.2 per cent in May, accelerating from a 4.0 per cent increase in April in a sign of simmering inflationary pressure, the data showed. Japan is struggling to reach a deal with Washington in tariff negotiations, clouding the outlook for its economy, which is heavily reliant on automobile shipments to the U.S. The uncertainty over U.S. trade policy forced the BOJ to cut its growth forecasts on May 1, suggesting the timing of its next rate hike may be delayed despite steadily rising inflation. Japan's core consumer inflation hit 3.5 per cent in April, marking the fastest annual pace in more than two years and exceeding the BOJ's 2 per cent target for more than three years, due largely to a surge in food costs. While the BOJ expects food inflation to moderate later this year, it has signaled its readiness to raise rates again once the economy resumes a recovery on solid wage gains. The BOJ ended a decade-long stimulus programme last year and in January raised interest rates to 0.5 per cent on the view Japan was on the cusp of durably hitting its 2 per cent inflation target. A Reuters poll, taken on May 7-13, showed most economists expect the BOJ to hold rates steady through September with a small majority forecasting a hike by year-end.
New Straits Times
09-05-2025
- Business
- New Straits Times
Japan March real wages dip, consumer spending up
TOKYO: Japanese real wages decreased for a third consecutive month in March, squeezed by relentless inflation although consumer spending beat expectations, government data showed on Friday. The mixed wage and spending data highlights Japan's challenging growth outlook, as the export-reliant economy faces tariff threats and uncertainty over monetary policy. Economists are expecting to see a contraction in first-quarter gross domestic product next week. Inflation-adjusted real wages, a key determinant of households' purchasing power, dropped 2.1 per cent in March from a year earlier following a revised 1.5 per cent fall in February and a 2.8 per cent decline in January, labour ministry data showed. The consumer inflation rate the ministry uses to calculate real wages, which includes fresh food prices but not rent costs, rose 4.2 per cent year-on-year in March, easing slightly from February's 4.3 per cent gain but still elevated due to rising food costs. Regular pay, or base salary, grew 1.3 per cent in March, the same pace as in February after a downward revision. But overtime pay fell 1.1 per cent, following February's revised 2.4 per cent growth, indicating a potential softening in business activity. It marked the first dip in overtime pay since September, and the decrease was the sharpest since April last year. Total average cash earnings, or nominal pay, increased 2.1 per cent to 308,572 yen (US$2,132) in March, which was slower than a revised 2.7 per cent rise in the previous month. In March, major Japanese firms on average agreed to more than 5 per cent pay hikes during annual spring wage talks, but the effect of such raises typically begins to show up in the government's wage data for April or later. "Looking ahead, real wages would likely move in positive territory," said Masato Koike, senior economist at Sompo Institute Plus, adding lower oil prices and a stronger yen will put downward pressure on import prices and keep inflation under control. At the same time, Koike said a global economic slowdown from US tariffs could risk stalling wage hike momentum. Meanwhile, separate internal affairs ministry data showed Japan's household spending rose 2.1 per cent from a year earlier, much better than the median market forecast for a 0.2 per cent uptick. On a seasonally adjusted, month-on-month basis, spending rose 0.4 per cent, versus an estimated 0.5 per cent decline. An internal affairs ministry official said increases in utilities and entertainment spending had pushed up overall figures, adding there were signs consumption had picked up in recent months. The official, though, said consumers were still cutting spending on food items because of higher prices. "Real wages are expected to improve, but it is difficult to imagine a significant increase in consumption in the face of increasing uncertainty" like tariffs, Koike of Sompo Institute Plus said.
Zawya
04-04-2025
- Business
- Zawya
Trump tariffs may delay, but won't derail, Japan rate hikes
TOKYO - New U.S. tariffs announced by President Donald Trump may delay, but likely won't derail, the Bank of Japan's plan to raise interest rates further as policymakers seek to avoid renewed yen falls that would worsen inflationary pressures. Trump's decision to slap a 25% levy on auto imports, and a reciprocal 24% tariff on other Japanese goods, will deal a huge blow to the export-heavy economy with analysts predicting the higher duties could knock up to 0.8% off economic growth. The stunning moves by Trump upend the BOJ's expectations that big exporters will use overseas profits to lift local pay, which would drive a cycle of wage and price increases, seen as a prerequisite for more interest rate hikes. With fears of a global recession looming, the BOJ is likely to cut its economic growth forecasts and hold off raising rates at its next meeting concluding on May 1, analysts say. But there is less certainty about just how long the BOJ will be able to keep rates where they are given mounting inflationary pressure at home that has drawn warnings from hawkish members of the board. "At the very least, a rate hike on May 1 is off the table given the expected hit to Japan's economy from U.S. tariffs," said former BOJ top economist Seisaku Kameda, who is now executive economist at Sompo Institute Plus. "But I won't rule out a rate hike in June or July, as the BOJ is caught in a dilemma of having to balance downside risks to the economy and domestic inflationary pressure," he said. BOJ Deputy Governor Shinichi Uchida told parliament on Friday the central bank would continue raising rates if the economy moves in line with forecasts, while keeping a close eye on risks to growth from tariffs. Inflation has exceeded the BOJ's 2% target for nearly three years due in part to a weak yen that boosted import costs, a stark contrast to Japan's 25-year battle with deflation that kept rates near zero. Headline inflation hit 3.7% in February on stubbornly high food costs which, coupled with steady wage increases, have heightened wider calls to keep raising interest rates. YEN, QUARTERLY REPORT KEY While the BOJ has raised rates three times under Governor Kazuo Ueda, its policy rate is still at 0.5% - well below U.S. and European counterparts. Adjusted for inflation, Japan's borrowing costs remain deeply negative. In keeping rates steady in March, some board members warned the recent surge in food prices could persist, and that Trump-related uncertainty alone should not keep the BOJ from "acting decisively" against inflation. "Domestic economic and price developments are on track, so it would have been hard to come up with a reason not to raise rates on May 1," said veteran BOJ watcher Mari Iwashita. "Trump tariffs gave the BOJ an excuse to stand pat for now, though I'm sure it will proceed with policy normalisation and hike rates again when the opportunity pops up," she said. A Reuters poll in March showed many analysts expect the BOJ's next rate hike to come in the third quarter, most likely in July. After the April 30-May 1 meeting, the BOJ board holds a policy meeting in June and July. The BOJ's quarterly outlook report, set for release after the May 1 meeting, will be scrutinised for clues on how the board balances Trump tariff risks and domestic price pressure. Days before the rate review, Ueda is expected to debate the global economic outlook with G20 finance leaders gathering in Washington on the sidelines of the annual IMF meetings. Already on Friday, Ueda said Trump's tariffs would likely weigh on Japan's economy and that the heightened uncertainty warranted vigilance in setting policy. But sounding too dovish on the rate outlook could prod investors to scale back bets of a near-term action, and trigger a renewed, unwanted and inflationary yen slide. The yen has rallied almost 7% against the dollar so far this year as investors sought the currency as a safe haven against Trump-induced global uncertainty. It stood at 146.10 to the dollar, off a nearly three-decade low below 160 hit last July. But Trump tariffs could keep U.S. inflation hot and prevent the Federal Reserve from cutting rates, triggering fresh yen falls, said former BOJ executive Kazuo Momma, who is now executive economist at Mizuho Research & Technologies. "Japan is already on the cusp of durably achieving the BOJ's 2% inflation target. Additional price pressure from renewed yen falls would heighten the need for a rate hike," he said. "If the yen slides back to around 160 to the dollar, that could be a pain point for the BOJ." (Reporting by Leika Kihara; Editing by Sam Holmes)
Zawya
07-02-2025
- Business
- Zawya
BOJ's fresh take on labour crunch opens door for more rate hikes
TOKYO - The Bank of Japan is increasingly blaming chronic labour shortages, not stagnant demand, as the main reason for its weak economic activity, a justification it may use to lift interest rates beyond what was initially expected. From factories to hotels to restaurants, Japanese businesses are struggling to hit full capacity not because they can't find customers but because they can't find workers, goes the commentary now emerging more from the central bank. While the tight labour market is not a new trend, the BOJ's more vocal concerns about the resulting wage and inflationary pressures mean it will be more inclined to look past economic weakness as it considers raising interest rates further, analysts and policymakers say. "My view is that ... the output gap is already in positive territory in reality and the lack of supply capacity is exerting upward pressure on prices," Naoki Tamura, a hawkish BOJ board member, said on Thursday. On paper, Japan's output gap, which measures whether the economy is running at its full potential, remains slightly negative, suggesting demand lacks momentum to ignite inflation. Coupled with soft consumption, it has been seen by analysts as a factor that could discourage the central bank from raising borrowing costs too much. But BOJ policymakers are challenging that narrative. A close look at the BOJ's quarterly outlook report published in January shows the bank turning more attention to growing signs wage-driven inflation is taking hold due to chronic labour shortages, in turn building the case for sustained, steady rate hikes. In that report, the BOJ said a dwindling pool of female and elderly workers meant labour market conditions are tightening even amid subdued economic growth. "In this situation, upward pressure on wages and prices is likely to be stronger than suggested by the output gap, given that firms in many industries have started to face labour supply constraints," the report said. The report also analysed how labour-intensive sectors such as construction and services were facing serious worker shortages that were curtailing activity. The BOJ's increasing focus on wage-driven inflation is another sign Japan is shedding its 25-year battle with deflation and economic stagnation. It also contrasts with former Governor Haruhiko Kuroda's insistence on using radical stimulus to fire up inflation. "The BOJ is becoming more convinced that wages and services prices will keep rising," said former BOJ top economist Seisaku Kameda, who is now executive economist at Sompo Institute Plus. "Its report, the language of its policy statement and the governor's comments all back up the case for more rate hikes." Mindful of the risk of an inflation overshoot, BOJ board members debated the chance of further interest rate hikes even after raising short-term rates to 0.5%, a summary of opinions at the January meeting showed. One opinion cited labour shortages as keeping inflation elevated, while another warned of the risk of "stagflation," where high inflation and low growth co-exist, the summary showed. The BOJ's hawkish tilt means markets may put greater focus on the bank's language around wage-driven inflation, rather than its views on consumption. "The BOJ is becoming increasingly mindful of how labour market conditions could be putting upward pressure on wages and prices, more than what its output gap estimate suggests," said Ryutaro Kono, chief Japan economist at BNP Paribas. "While the initial factor may have been the weak yen, the BOJ is beginning to recognise the risk of price rises turning into home-made inflation," he added. PERSISTENT PAIN Japan's rapidly ageing population has led to a dwindling pool of workers. The country faces a deficit of 3.4 million workers by the end of this decade and 11 million by 2040, according to a 2023 study by Recruit Works Institute. Kushikatsu Tanaka Holdings, which runs a restaurant chain nationwide, is among retailers suffering from chronic labour shortages, particularly in regional areas. "It's not as if we're suddenly facing shortage of staff - it's a permanent issue," an executive of the company told Reuters. "In regional areas, it's not even about hourly pay. There's a lack of people in the first place. We're trying to consolidate our outlets and shut those that are proving unprofitable." Keen to retain workers, Japanese companies agreed to an average 5.1% wage hike in 2024, the biggest increase in three decades, a union survey showed. In his speech on Thursday, BOJ board member Tamura said labour shortages were forcing hotels to reduce occupancy rates and meant some taxi operators had more cars than drivers. As central banks have no power to address supply constraints, their mandate remains squarely on combating subsequent inflationary pressure by raising interest rates. With stubbornly high raw material costs and labour shortages keeping inflation above the BOJ's target for nearly three years, markets are now re-assessing their view rates won't rise too much. Governor Kazuo Ueda said last month the BOJ's policy rate was still distant from levels deemed neutral to the economy, leaving scope for several more rate increases. BOJ staff estimates Japan's nominal neutral rate to be in a range of 1.0% to 2.5%. Having seen Japan's prolonged struggle with deflation, many analysts had bet the highest the BOJ could hike would be up to 1%. But building inflationary pressures may reduce the chance the BOJ will pause there. Growing market expectations that the BOJ's terminal rate could be higher have helped lift Japanese government bond yields to multi-year highs and propped up the yen. "There's no reason why markets should assume that rates won't rise beyond 1.0%, which is the bottom of the estimated range," said a source familiar with the bank's thinking. ($1 = 152.2700 yen)
