The increase in commodity prices is accelerating amid soaring resource prices and a weak yen, which is directly impacting the lives of people in Japan. The government and the Bank of Japan (BOJ) need to step up their level of vigilance.
The central bank upgraded its core consumer inflation forecast for the current fiscal year to 2.3%, up 0.4 percentage points from its forecast in April. Excluding the effects of the increase in the consumption tax, this is the first time in the past 20 years for the forecast to exceed the bank's 2% target.
However, price hikes alone have progressed, while wage increases have been sluggish. This is far from a desirable economic situation. In order to support the economy, the BOJ has decided to maintain its large-scale monetary easing policy.
Due to Russia's invasion of Ukraine, the price of crude oil and other sources of energy, as well as grain, is increasing, and inflation is becoming a global problem. The central banks of other major countries have prioritized measures to counter inflation and are rushing to tighten monetary policy.
The European Central Bank decided to raise interest rates for the first time in 11 years, by 0.5 percentage points, double the hike that was initially planned. The Federal Reserve Board, which serves as the central bank of the United States, is also set to go ahead with an additional sharp rate hike in the near future.
In contrast, BOJ Gov. Haruhiko Kuroda stressed, "We have absolutely no intention of raising interest rates. We will persistently continue easing." Compared to countries overseas that have flexibly amended their monetary policies, the deadlocked atmosphere in the BOJ stands out.
It is feared that Japan could see a repeated chain of a weak yen and high prices. Some observers speculate that the yen could even weaken to 140 yen to the dollar for the first time since 1998, as the dollar, with its high interest rates, is bought in foreign currency markets.
According to research firm Teikoku Databank Ltd., some 15,000 food items in Japan are expected to increase in price this year. Previously, such increases were mainly caused by rising raw material and logistics costs, but recently the effects of the weak yen have stood out, and price increases are expected to occur one after the other in August and October, the company says.
While monitoring trends in exchange rates, the government and BOJ should consider stepping up policies to support people on low incomes to limit the impact of such price hikes on their lives.
Attention should also be paid to the risk of a slowdown in the global economy, as there is a risk that monetary tightening by the United States and Europe could excessively dampen investment and consumption, disrupting financial markets.
The number of people infected with the coronavirus in Japan has surged recently, and uncertainty over the economic outlook is increasing. There is a need to adopt flexible policies.