The Strategist

For the first time in two years Japan is optimistic about inflation

04/07/2017 - 16:25

Inflationary expectations of Japanese households have grown for the first time in the past two years, as the Bank of Japan evidenced in a survey. The organization says that consumers are paying attention to a series of increases in prices for food and household goods, writes Reuters.

Share of households that expect prices to rise in a year was 67% in March 2017 compared to a four-year low of 64.7% in December, showed the Bank of Japan's quarterly survey. Last time households were expecting increase in prices in June 2015. In the latest poll, 79.3% expected inflation to grow for five years compared to 77.6% in December.

The consumer price index of Japan in February increased by 0.2% compared to the previous year. This was the second month of growth in a row after the annual recession, yet this figure remained well below the Bank of Japan's 2% target. Nevertheless, buyers are beginning to see higher prices in stores. The inflation is starting to affect prices for various types of products, from butter to dry algae, as the weaker yen makes imported products more expensive, and shortage of labor increases cost of logistics.

Nisshin Ollio Group culinary oil producer raised prices this month, and Oji Nepia paper maker plans to increase prices in May. Still, revenues have remained virtually unchanged since October as adjusted for inflation, despite the government's call to accelerate wage growth to support economic recovery. Real wages were flat in February.

The last study of the Bank of Japan was held between February 8 and March 6, and involved 2174 people.

MarketWatch at the end of last year wrote that the indicator of inflationary expectations among companies in Japan grew in the IV quarter of 2016 for the first time in a long period.

Quarterly survey of companies published by the Bank of Japan showed that companies expect the inflation to accelerate to 0.7% in October-December 2017. In the previous survey, companies noted that inflation will number 0.6% for the entire year.

The companies also increased their forecast for five years, and now expect a price increase of 1.1% (previously - 1%), the Central Bank of Japan said.

The hike is noted for the first time since the beginning of the survey in the spring of 2014. The results may further lower likelihood of additional monetary stimulus and possibly trigger a discussion among Prime Minister Shinzo Abe's advisors and some economists on the need for monetary tightening in the future.

At the same time, the companies did not change their three-year forecast for inflation: they still expect it at the level of 1%.

Japan once again started to be optimistic about inflation after expectations on Trump’s new policy triggered a reversal in global financial markets. The yen has fallen more than 10% against the dollar, and as a result, the outlook for profits of Japanese exporters has improved.