Bank of Japan Governor Kuroda How do you see the realization of price increases accompanied by wage increases instead of the effects of a weak yen?

In late September, Bank of Japan Governor Kuroda's remarks, "Achieving the price stability target will be difficult next year and the year after ,"

surprised market participants.

Kuroda's view is that the rise in prices due to high raw material prices will be temporary.

However, as the term of office of the governor is approaching six months, there are some voices within the BOJ that expect it to be the last chance to achieve the price stability target accompanied by wage hikes.

Why have you become so cautious?

And what about future price trends?

(Economics Department reporter Neil Kato)

Is the price increase temporary?

Prices will not stop rising.

The consumer price index (excluding fresh food) in August this year was 2.8%.

It is the fifth consecutive month that the BOJ has exceeded its target of 2%.

There is also a view that it will exceed 3% by the end of the year.

However, Governor Kuroda emphasized at a press conference in September that the price rise was temporary.

“The current rise in prices is due to rising prices of imported goods due to the impact of the international commodity market and the weaker yen. It is not the case that wages will rise and prices will rise, but the price stability target will be achieved next year and the year after is also difficult

Why has the price target not been achieved?

Why has the Bank of Japan failed to raise prices in the way it aims to?

One is that, as Governor Kuroda points out, it is a cost-push price hike that is not accompanied by wage increases.

Another reason is that people's perception of prices does not change.

The Bank of Japan has verified the cause twice.

First, verification in September 2016.

At this time, I compared the prices of Japan and Europe and the United States.

It turns out that Japanese firms' and consumers' outlook for prices is more influenced by the current price level than by the price target set by the central bank.

At that time, prices were falling due to factors such as the drop in crude oil prices.

In Japan's annual spring labor offensive, wage negotiations take into consideration the previous year's price hikes, so wage increases are likely to be dragged down by recent price increases.

And verification in March 2021.

Here, it is assumed that each generation has different views on prices.

A detailed analysis of the Bank of Japan's survey on lifestyle attitudes reveals that generations who have never experienced inflation, including the oil shocks of the 1970s, have a hard time predicting that prices will rise.

The Bank of Japan concludes that the reason why prices do not rise is that expectations of deflation have become deeply entrenched due to past experiences.

Norms cultivated through past experiences and ways of thinking rooted in society are called "norms." These days, the term is often used within the Bank of Japan to express people's perceptions of prices.

For example, Governor Kuroda made the following remarks at a press conference in July.

"Companies are moving to pass on prices, but this is just passing on import prices. I don't see that the conventional norm has completely changed. It's still not enough.

" In 2018, companies' outlook for prices five years from now reached 2% for the first time. increase.

does the norm change?

What will happen to prices from now on?

We asked Professor Tsutomu Watanabe of the Graduate School of the University of Tokyo, a leading figure in price research.

Professor Watanabe says that Japan's current price hike is a combination of chronic deflation and acute inflation.

While there are commodities such as electricity and gasoline that have seen a sharp increase in price compared to the previous year (acute inflation), there are still many commodities whose prices have barely changed (chronic deflation), such as hairdressing, rent, regular, and service-related items. It is.

This is a table created by Professor Watanabe based on the August consumer price index.

We summarized the distribution of the 600 items surveyed.

The rate of increase compared to the same month of the previous year increases as you move the horizontal axis of the graph to the right.

Energy-related items stand out in particular.

On the other hand, the center of the graph.

There is a large peak where the rate of climb is zero.

This is an item whose price has not moved at all.

Although the price increase rate has exceeded 2% since April this year, the prices of about 30% to 40% of all items have not changed.

It is said that it is very different from Europe and the United States.

Professor Watanabe

: “Acute inflation caused by rising prices of a wide range of goods and services is serious in Europe and the United States, and central banks are responding by raising interest rates. In

Japan, there are moves to pass on rising raw material costs, but there is no move to pass on rising wages as in Europe and the United States, and prices remain unchanged, mainly in service-related industries, which have a high proportion of labor costs.

” On the other hand, it is said that there are signs of change in the awareness of Japanese consumers.

According to Professor Watanabe's survey, Japanese consumers are more sensitive to price increases than Westerners.

When asked what they would do if a familiar supermarket raised prices by 10%, 57% of people in Japan answered that they would move to other stores in a survey last August.

In the United States, Canada, the United Kingdom, and Germany, 30% to 40% of respondents said they would continue shopping at familiar stores, but only Japan accounted for more than half.

However, according to a survey conducted in May this year, 44% of people in Japan said they would move to another store, which is the same level as in Western countries.

It is said that he is in a situation where he has no choice but to accept price increases with a feeling similar to giving up as prices are being raised one after another.

Professor Watanabe says that the key to future price trends is wages.

Professor Watanabe

: Chronic deflation may be corrected in the wake of acute inflation, and the key point is whether there will be a movement to pass on not only high raw material costs but also labor costs to prices, leading to wage increases. Labor costs tended to be the target of cost cutting during this period, but that would make it difficult

to create originality

and ingenuity in product development and services, and would not increase competitiveness.We need a wide-ranging discussion on wages.”

increase.

Is it possible to escape from the chronic deflation that has plagued the Japanese economy for many years, with acute inflation leading to wage increases?

And will there be a change in what the Bank of Japan calls the “norm”?

I would like to pay attention to whether the rise in prices will create a virtuous cycle in the economy.

attention schedule

In the early hours of Japan time, the Federal Reserve Board, the central bank of the United States, will publish the minutes of its September meeting.

At this meeting, the FRB raised the interest rate by 0.75% for the third time in a row, but what kind of interaction was there?

Also, on the night of the 13th Japan time, there will be an announcement of the consumer price index, which is important for forecasting future interest rate hikes in the United States.