TOKYO, Oct. 10, 2024—Prices have been spiraling in Japan across the board over the past few years, well above the Bank of Japan’s 2-percent year-on-year target, but from the prime minister to the Bank of Japan governor, the powers that be say the country has yet to come out of deflation — a perfect schizophrenic pattern.
Consumers and businesses are screaming about high prices, complaining that a bowl of ramen amounts to more than 1/10th of daily income and asking for government action to harness prices and give them support. In response, the government has promised to extend more childcare subsidies, pump government monetary to subsidize gasoline and utility bills, and the central bank had raised short-term interest rates a little.
So, effectively, the government – from the prime minister and other ministers to the BOJ governor – is admitting that Japan is experiencing inflation that’s well above its 2-pct target. Yet they unanimously yodel that Japan remains mired in deflation and is in need of proactive policy shift.
The new prime minister, Shigeru Ishiba, explained his economic policy in an address to dissolve the Diet (parliament) at an Oct. 9 presser. ‘A cost-cutting economic policy (price and labor cuts) needs to end (and in its place) value-added creative economy should come in, where people would want to buy goods and services even paying (high) prices… Unless consumer spending grows, Japan cannot get out of deflation,’ he declared.
Oh, Yah? Consumers are screaming about rising prices but Ishiba said Japan still is in deflation and labor costs and goods and service prices need to rise further. It’s as if Ishiba has inherited the two former prime ministers that had introduced active price spurring policies, most notably instructing the BOJ to continue zero interest policy. Schizophrenia? The three of them have it.
Deflation is defined in academia as ‘a decrease in the general price level of goods and services, and is the opposite of inflation. It occurs when the inflation rate falls below 0%.
‘Deflation can be caused by a number of factors, including:
- A decrease in the supply of money and credit;
- A decrease in demand for products;
- An increase in the supply of products;
- Excess production capacity.’
Except weak demand for products, other factors are nowhere to be found in Japan: BOJ continues its near-zero policy: product supplies are tightening, rather than increasing, because of labor shortages, the climate change, regulation-cheating production stoppage and poor quality control; factories and operating at regular or tighter capacity but adding new capacity is discouraged by labor shortage.
On the back of this, headline inflation has been climbing a few percentage points every quarter prompting manufacturers to raise their outgoing prices.
The earnings report of Aeon Corp., the top general merchandise and retailer, reported on Oct. 13 vividly and accurately reflects the plight of producers, wholesalers, retailers (Aeon), logistics operators, and consumers.
The company reported revenue growth of 6 percent for the March-August half-year period from the same period a year ago, an all time high, and net income plunging 76 percent. It attributed the performance to labor cost rises resulting from wage increases, logistics, higher incoming costs and inability to raise outgoing prices.
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