Japan is Finally Seeing Some Inflation Not be Time To Celebrate

KEY POINTS

  • Ernie Higa, a veteran entrepreneur, said that Japan’s core consumer costs may be close to the central banking’s 2% target.
  • Friday’s government data showed that Tokyo’s core price index, which does not include fresh food or energy, rose 1.9% to May from the previous year.
  • Japan is currently dealing with cost-push inflation, where wages and prices are increasing at the expense of their products. Higa spoke to CNBC’s Squawkbox Asia on Friday.

Ernie Higa, a veteran entrepreneur, said that Japan’s core consumer costs may be approaching central banking’s 2% target.

Higa Industries’ Chairman & CEO stated that inflation is akin to cholesterol. Japan has bad inflation. Higa was well-known for bringing Domino’s Pizza into Japan.

According to government data Friday, Tokyo’s core Consumer Price Index (which excludes fresh food and energy) increased 1.9% in May over the previous year.

The Bank of Japan has yet to set an inflation target for this figure, but it is close enough. The rise in costs is largely due to food and fuel prices. The Tokyo consumer price index grew 0.9% year-on-year in May without taking out fresh food or energy prices.

Higa explained how the Bank of Japan looked at demand-pull inflation. In this case, the Bank of Japan would consider inflation in which the rise of wages would create a “virtuous circular” of consumer expenditure that further pushes the prices up.

“Inflation is a bit like cholesterol. There’s good and bad cholesterol. What we are experiencing in Japan right now is bad inflation.”

He added that right now, the country faces cost-push inflation — where prices go up and wages don’t follow. “Retailers are feeling really squeezed, because all of their costs have gone up, but it’s not possible to pass that cost to the consumer.”

Japan is not only the major economy under pressure from price increases. Another country like the U.S. and UK is currently experiencing arguably more severe costs of living.

The Bank of Japan, however, continues to be ultra-dovish in its monetary policy stance. They keep interest rates relatively low while their peers at U.S. Federal Reserve or Bank of England have raised rates to combat inflation.

The divergence between policy outlooks has resulted in a sharp weakness in the Japanese Japanese, yen this year. In fact, the currencies at one time weakened beyond the 130 handles compared to the greenback.

Since then, the Japanese yen has strengthened and is trading at about 127 per USD (Friday afternoon in Asia). But this is still a sharp contrast to the levels at which the greenback was valued at 114 earlier this year.

Higa stated that the Japanese import 60% of their food and 99% of their energy from Japan, making the exchange of yen very important. Higa stated that the sharp fall in the value of the Japanese currency against its dollar is leading to an “extreme price.”

He stated, “If import food, you cannot even fix your cost. Much less how do we figure out… our selling price.”