Japan's Inflation Reaches 40-Year High

According to data released by Japan's internal affairs ministry on Friday, inflation hit a fresh four-decade high in November as prices rose at their fastest pace since 1981, partially driven by rising energy costs.

Japan's Inflation Reaches 40-Year High
Image credit: Manuel Cosentino / Unsplash

Facts

  • According to data released by Japan's internal affairs ministry on Friday, inflation hit a fresh four-decade high in November as prices rose at their fastest pace since 1981, partially driven by rising energy costs.
  • Japan's core consumer price index (CPI), which excludes volatile fresh food but includes energy costs, rose 3.7% in November from a year earlier, matching market forecasts.
  • In contrast to other world economies, the Bank of Japan (BOJ) has maintained a loose monetary policy to boost its economy. However, earlier this week, it raised the cap on the interest rate on its 10-year government bonds from 0.25% to 0.5%, which saw the Japanese yen spike against the US dollar.
  • Some economists forecast the bank's adjusting of its yield control could signal a withdrawal from its stimulus program, however, BOJ Gov. Haruhiko Kuroda — whose term is up in April — assured that it has no intention to do so.
  • November's rise in prices ranged from utility bills to smartphones, with retailers expected to continue to raise prices next year. Meanwhile, analysts predict the global economy may worsen in the first half of 2023, straining BOJ measures.
  • The BoJ will likely scrutinize Japan's core consumer price index (CPI) data when it produces new quarterly inflation forecasts at a policy meeting ending on January 18.

Sources: Al Jazeera, US News, BBC News, Reuters, and CNN.

Narratives

  • Establishment-critical narrative, as provided by WE Forum. After a decade of trying to generate inflation in an economy entrenched in price weakness, the BOJ seems unable to adapt to today's conditions. While Japan is experiencing a smaller scale of inflation than other nations, prices are still at a 40-year high. However, unlike those economies, its wages have remained virtually stagnant for the last three decades meaning its citizens are — literally — paying the price for Japan's failure to evolve.
  • Pro-establishment narrative, as provided by Bloomberg. Japan's economy is a different beast than the rest of the world's and must be treated as such. From its rapidly aging and shrinking population decreasing demand to its decision not to shut down the economy during the pandemic, Japan was bound to be disinflationary. Its loose monetary policy — which kept many of its businesses afloat — has enabled the nation to bide its time as other economies panic. The BOJ will reassess as needed.