Japan's Inflation Rate Enters 2% Range for First Time in 14 Years '2.1% in April'

Due to Rising Energy Prices and Weak Yen... Concerns Over 'Consumption Contraction' as a Negative Factor

Trend of Consumer Price Inflation Excluding Fresh Food in Japan

[Asia Economy Reporter Park Byung-hee] Japan's consumer price inflation rate has effectively surpassed the Bank of Japan's (BOJ) monetary policy target of 2% for the first time in about 14 years. Given that the Japanese economy has long suffered from deflation, a consumer price inflation rate in the 2% range is a welcome phenomenon. However, concerns have also been raised that the current price increase, driven by rising energy prices and yen depreciation, is a temporary phenomenon that could instead dampen consumer spending.

According to Bloomberg News on the 19th, Japan's Ministry of Internal Affairs and Communications announced that the year-on-year increase rate of Japan's core Consumer Price Index (CPI, excluding fresh food) for April was 2.1%.

This is the first time in 7 years and 1 month since March 2015 (2.2%) that Japan's core CPI inflation rate has entered the 2% range. However, at that time, the result reflected the effect of the consumption tax rate hike, so the actual entry into the 2% range for core CPI inflation is the first since September 2008 (2.3%).

By item, energy prices rose 19.1%, and food prices excluding fresh food increased by 2.6%.

Recently, Japanese companies have unusually raised product prices, making a CPI increase expected. Due to rising energy costs and the impact of yen depreciation, Japan's corporate goods price inflation rate in April recorded 10.0%, the highest since 1981. Consequently, Japanese companies began passing on the increased cost burden to consumers by raising product prices. The key issue is whether consumers will bear the price increases and increase consumption.

However, concerns arise from the fact that when Japan's Cabinet Office announced the first-quarter GDP data on the 18th, the private consumption growth rate for the first quarter was 0%. Although this was better than the initially expected decline, consumption is still not increasing. Therefore, there is criticism that the current price increase is not good inflation driven by demand but bad inflation caused by supply shortages. It is also forecasted that the current 2% inflation rate will be difficult to sustain without demand support.

Goldman Sachs analyst Tomohiro Ota raised Japan's consumer price inflation forecast in a report dated the 17th, citing yen depreciation and rising food prices. However, he still expected 1.6% this year and 1.9% next year, both below the BOJ's monetary policy target.

Accordingly, although inflation has entered the 2% range, it is expected to be difficult for the BOJ to shift its monetary policy direction toward tightening.

Professor Eisuke Sakakibara of Aoyama Gakuin University, famous by the nickname "Mr. Yen," predicted in an interview with Bloomberg TV that the yen's value could fall to 150 yen per dollar due to differences in monetary policies between the U.S. and Japan. He said, "The market currently expects the year-end yen value to be between 140 and 150 yen per dollar, and this seems highly likely." He added, "If the yen falls below 150 yen per dollar, the BOJ will be somewhat concerned." The last time the yen traded at 150 yen per dollar was in August 1990.

This content was produced with the assistance of AI translation services.