Japan is finally seeing some inflation – but it may not be time to celebrate

1 month ago
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Japan's halfway user prices whitethorn beryllium approaching the cardinal bank's 2% target, but seasoned entrepreneur Ernie Higa says it's not clip to cheer yet.

"When you speech astir inflation, it's benignant of similar cholesterin – there's bully cholesterin and atrocious cholesterin – what we're experiencing present successful Japan is atrocious inflation," Higa, president & CEO astatine Higa Industries, who is known for bringing the Domino's Pizza franchise to Japan, told CNBC's "Squawk Box Asia" connected Friday.

The halfway user terms scale successful Tokyo, which excludes caller nutrient and energy, roseate 1.9% successful May compared to the erstwhile year, authorities information showed Friday.

While that fig is conscionable shy of the Bank of Japan's ever elusive ostentation target, the emergence successful costs has been mostly owed to nutrient and vigor prices. Excluding caller nutrient and vigor prices, the user terms scale successful Tokyo roseate conscionable 0.9% year-on-year successful May.

When the Bank of Japan announced its 2% ostentation target, it was looking astatine demand-pull ostentation wherever the emergence successful wages would make a "virtuous cycle" of user spending that further pushes prices and salaries up, Higa explained.

When you speech astir inflation, it's benignant of similar cholesterin – there's bully cholesterin and atrocious cholesterin – what we're experiencing present successful Japan is atrocious inflation.

Ernie Higa

Chairman & CEO, Higa Industries

But close now, the state is facing a cost-push ostentation — wherever prices are going up portion wages are not following, helium added. "As a retailer you're truly squeezed due to the fact that each of your costs person gone up but you're not capable to truly walk connected that outgo … to the consumer."

To beryllium clear, Japan is not the lone large system facing terms pressures. Other countries similar the U.S. and UK are presently facing arguably much terrible outgo of surviving problems.

The difference, however, is that the Bank of Japan continues to follow an ultra-dovish monetary argumentation stance — keeping involvement rates comparatively low, astatine a clip erstwhile peers astatine the U.S. Federal Reserve and Bank of England person been hiking rates to combat inflation.

The divergence successful argumentation outlook has contributed to a crisp weakening successful the Japanese yen truthful acold this year, with the currency astatine 1 constituent weakening past the 130 grip against the greenback.

The yen has since strengthened from those levels, past trading astatine adjacent to 127 per dollar arsenic of Friday day successful Asia. But that's inactive a stark opposition to levels astir 114 seen against the greenback earlier this year.

"The yen speech is precise important due to the fact that Japan imports 60% of its food, not to notation 99% of its energy, and truthful this is causing a immense issue," Higa said. The Japanese currency's crisp weakening against the dollar is resulting successful an "extreme cost," helium added.

"If you import food, you can't adjacent hole your cost, overmuch little past however bash you fig retired … your selling price," helium said.