Japan’s supply-driven food inflation to persist longer than expected
We have revised our CPI forecast upwards for this year and next, due to more persistent supply side-driven food inflation, led by soaring prices of rice. Despite the significant revision to the short-term inflation path, we don’t expect the Bank of Japan (BoJ) to react with a rate hike.
What you will learn:
- A combination of record summer heat in 2023, panic buying, and speculative trading has driven rice prices upwards. Despite a good harvest in 2024 and the government’s decision to sell its rice stockpiles, prices are still rising and we now expect them to decline more slowly than we previously anticipated.
- The prices of non-fresh foods other than rice have also registered modest but persistent inflation, of 3%-4%, reflecting the pass-through of rising input costs, including the lagged impact of yen weakening and a sharp rise in logistics costs.
- We have not changed our monetary policy forecast since the supply-driven food inflation, especially rising rice prices, will likely stabilise. That said, we will closely monitor how higher food inflation affects inflation expectations. We have nudged up our 10-year Japanese government bond (JGB) forecast to reflect a higher inflation risk premium.
Tags:
Related Posts
Japan’s politics add uncertainty to BoJ policy outlook
The Bank of Japan (BoJ) kept its policy rate at 0.5% at its October meeting, after a 7-2 majority vote. Two board members again voted for a rate increase. We believe the BoJ will hike in December to 0.75% as incoming data confirm that the economy is performing in line with the bank's forecasts in its quarterly outlook. However, there's a material chance of a delay.
Find Out More
Japan’s December rate hike appears likely, though there is a risk of delay
We've brought forward the timing of the next Bank of Japan (BoJ) 25bps rate hike to December from next year and have added another 25bps hike in mid-2026. This reflects the surprisingly hawkish shift in the BoJ's view since its September policy meeting and upward revisions to our growth and inflation projections, driven by the US economy's resilience.
Find Out More
BoJ announces cautious plan to sell ETF and J-REIT holdings
At its monetary policy meeting on Friday, the Bank of Japan (BoJ) unexpectedly announced it would start to sell its ETF and Japanese real estate investment trust (J-REIT) holdings. We think the impact of this plan on financial markets will likely be limited because the BoJ is opting to play it safe in terms of the process and the scale.
Find Out More
