A political decision to fix Japan’s horrible fiscal mess by fueling inflation, and forget about that 2% target.
By Wolf Richter for WOLF STREET.
Outgoing Bank of Japan boss Haruhiko Kuroda and new boss Kazuo Ueda sang the same anthem as the worst inflation figures since 1981 were revealed on Friday: inflation will go away on its own, and we’re going to maintain the reckless policies of negative interest rates and money printing.
Kuroda is betting his entire tenure at the BOJ on these policies and can’t back down no matter what inflation does, and inflation does; and Ueda cannot contradict Kuroda. He will become boss in April, and until then he will sing the same anthem. Then, eventually, there will be a review of monetary policy, which will find that these policies have worked well, but it may be time to adjust them a little. All of this will take until the second half of this year, and until then the BOJ will be fueling this inflation with all its might.
Japan “core” consumer price index for all items minus fresh food, which the BOJ uses for its 2% inflation target, jumped 4.2% in January from a year ago, the worst rate since 1981, data shows from the Japanese Bureau of Statistics today. The index is now more than double the BOJ’s target, having topped four previous peaks, three of which were fueled by consumption tax hikes. Inflation exceeded the BOJ inflation target (purple line) in April 2022.
This time there has been no consumption tax hike, but widespread and increasingly steep price increases on a wide range of goods and services as inflation digs deeper into the economy.
CPI for all items jumped 4.3% from a year ago, also the worst inflation since 1981.
On a month-to-month basis, the CPI jumped 0.5%, the biggest jump since October. In this whole episode of inflation, there are only three monthly jumps of 0.5% or more (January 2023, October 2022 and July 2022). Nothing slows down this inflation.
This comes despite the government’s energy aid program which is keeping inflation going; and despite large parts of the economy where nearly every aspect of consumer-oriented prices is either set or controlled by the government, including the vast universal healthcare system, public transportation system, and education.
Main categories of inflation.
- Food: +7.3%, the worst since 1980. Includes: fresh fish and seafood +17.2%; meats +7.6%; dairy products and eggs +9.5%; vegetables & seaweed (+3.4%); fruit (+2.7%); beverages (+6.3%).
- Meals away from home: +5.9%.
- Housing minus fictitious rent: +4.7%
- Repairs and maintenance: +8.2%
- Electricity, gas, water, domestic sanitation: +14.9%
- Household durable goods: +11.1%
- Communications: +7.1%
- Clothing and footwear: +3.1%
- Clothing-related services: 5.0%.
Governments hold back inflation where they control prices.
- Healthcare inflation: In Japan’s universal healthcare system, the government largely decides what consumers should pay:
- Medical care: +0.5%
- Medicines: +1.6%
- Medical supplies and devices: +1.2%
- Medical benefits: -0.3%
- Public transport: +0.6%
- Education: +0.7%
Say goodbye to price stability.
Between about 1993 and 2021, the all-items consumer price index has remained within the same narrow range, with some fluctuations in between, with the brief one-off jumps provided by increases in consumption taxes. It was an era of mild inflation and mild deflation, the era of more or less true price stability, a rare occurrence in the modern world. And it’s done.
A political decision to fuel inflation to solve the fiscal mess.
Kuroda, speaking at the G20 event in India, said he expected inflation to be below 2% for fiscal year 2023, which starts April 1, and during fiscal year 2024. He will be out at the start of fiscal year 2023, so it is not his job anymore to bring inflation down to 2% in fiscal year 2023 and 2024. He is ostensibly clinging to the fiction that this inflation is “transient”, but he can say what he wants. It will be the job of his successor to deal with it.
His successor will be Kazuo Ueda. But he’s still not in that job, and his confirmation is still pending, so he’s not going to rock the boat until he’s even set foot in it. He said today that the BOJ’s negative interest rate policy and money printing were appropriate. And like Kuroda, he has always blamed that inflation on supply problems, a strategy even the Fed abandoned a year ago after coming under fire.
One thing is for sure, even under the new leadership, the BOJ will take months to do anything, even just a monetary policy review, and inflation will be fueled even more so that it can rage in full force. splendor.
As inflation ravages Japanese households, it is also a way to reduce Japan’s gigantic and unsustainable fiscal debt.
It is now clear that a political decision was made to deal with this fiscal mess by letting inflation rage and actually fueling this raging inflation – and forget about that 2% target.
In reality, what else could they do? That’s always how this type of tax madness and money printing ends: runaway inflation, which solves this tax problem insidiously, at the expense of households – but it solves this problem.
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