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8 Jan 2014
Will Japan avoid a 'bad inflation' cycle?
FXstreet.com (Bali) - As Japan pursues sustainable higher price targets, the threat of 'bad inflation' looms in a country that soon - April - will have to cope with a 3% increase, from 5% to 8%, in its sales tax.
While it may sound irrelevant at first - think about the Big Mac index -, the production and demand for mayonnaise in Japan serves as a measure to assess the consumption slow down the country is about to face, with Bloomberg Editors Masaki Kondo and Shigeki Nozawa, noting:
"Price increases are prompting Japanese shoppers to buy less mayonnaise, showing the fragility of any economic rebound unless wages keep up with living costs. Production of the sauce fell 5.1 percent in the five months that ended on Nov. 30 from a year earlier, which partly reflected stockpiling before Kewpie Corp. hiked prices by as much as 9 percent in July, followed by Ajinomoto Co. in August. The cost of living in Japan, excluding fresh food, climbed at the fastest pace in five years in November, even as salaries continued a tailspin that started in June 2012."
As previously outlined in great detail, the mother of all fears for the regular Japanese consumer is that earnings fall way behind the curve when compared to inflation, which if added the tax hike, it presents a major setback in purchasing power to achieve the dreamed 'virtuous cycle'.
While Bank of Japan Governor Haruhiko Kuroda has urged in every way imaginable for business leaders to raise salaries, some Analysts are starting to talk about a 'bad inflation cycle' developing.
Bloomberg quoted Toru Suehiro, Economist in Tokyo at Mizuho Securities Co., saying “the trend appears to be a sign that bad inflation is unfolding,” when referring to the decline in mayonnaise production. “Stockpiling shows consumers are sensitive to prices. If salaries had been rising, there wouldn’t have been such stockpiling.”
Bloomberg also cites Kiyoshi Ishigane, Senior Strategist at Mitsubishi UFJ Asset Management Co, noting "we’re getting poorer in real terms when prices rise. I feel the quality of meals has declined in my home.”
On the prospects of increasing pays, Ishigane said “Japanese business managers are very nervous about costs. Businesses have been unable to raise prices over the past decade and instead kept cutting costs, including wages. They can’t instantly raise salaries even when they are asked to.”
Lastly, Satoshi Okagawa, Senior Analyst in Singapore at Sumitomo Mitsui Banking Corp, also cited by Bloomberg, had the following to say: “What BoJ's Kuroda is doing is like praying for rain, salaries are like raindrops and it’s impossible for the BOJ to have a direct influence over them.”
While it may sound irrelevant at first - think about the Big Mac index -, the production and demand for mayonnaise in Japan serves as a measure to assess the consumption slow down the country is about to face, with Bloomberg Editors Masaki Kondo and Shigeki Nozawa, noting:
"Price increases are prompting Japanese shoppers to buy less mayonnaise, showing the fragility of any economic rebound unless wages keep up with living costs. Production of the sauce fell 5.1 percent in the five months that ended on Nov. 30 from a year earlier, which partly reflected stockpiling before Kewpie Corp. hiked prices by as much as 9 percent in July, followed by Ajinomoto Co. in August. The cost of living in Japan, excluding fresh food, climbed at the fastest pace in five years in November, even as salaries continued a tailspin that started in June 2012."
As previously outlined in great detail, the mother of all fears for the regular Japanese consumer is that earnings fall way behind the curve when compared to inflation, which if added the tax hike, it presents a major setback in purchasing power to achieve the dreamed 'virtuous cycle'.
While Bank of Japan Governor Haruhiko Kuroda has urged in every way imaginable for business leaders to raise salaries, some Analysts are starting to talk about a 'bad inflation cycle' developing.
Bloomberg quoted Toru Suehiro, Economist in Tokyo at Mizuho Securities Co., saying “the trend appears to be a sign that bad inflation is unfolding,” when referring to the decline in mayonnaise production. “Stockpiling shows consumers are sensitive to prices. If salaries had been rising, there wouldn’t have been such stockpiling.”
Bloomberg also cites Kiyoshi Ishigane, Senior Strategist at Mitsubishi UFJ Asset Management Co, noting "we’re getting poorer in real terms when prices rise. I feel the quality of meals has declined in my home.”
On the prospects of increasing pays, Ishigane said “Japanese business managers are very nervous about costs. Businesses have been unable to raise prices over the past decade and instead kept cutting costs, including wages. They can’t instantly raise salaries even when they are asked to.”
Lastly, Satoshi Okagawa, Senior Analyst in Singapore at Sumitomo Mitsui Banking Corp, also cited by Bloomberg, had the following to say: “What BoJ's Kuroda is doing is like praying for rain, salaries are like raindrops and it’s impossible for the BOJ to have a direct influence over them.”