[Explanation] What will happen to "military invasion of Ukraine"?
Impact on the economy February 24, 21:54
What I don't want to wake up has become a reality.
"Russian invasion of Ukraine".
On February 24, Russian state news agencies reported that the attack had begun, saying that "Russian troops have neutralized Ukrainian military facilities and airfields with high-performance weapons."
How will the anomalous events that occur in distant Eastern Europe affect Japan's lives, livelihoods, and corporate performance, and what will happen to the world economy?
(Desk of Economic Department Hirotaka Toyonaga)
“Full-scale invasion”
"President Putin's actions are a complete invasion"
"Ukrainian cities are under attack"
"Russian attack forces land in Maiupoli, Odessa"
On the afternoon of February 24, newsletters were reported one after another. The financial markets were shocked.
Financial markets tremble
The Tokyo stock market saw a widespread sell order after President Putin announced in a television speech that he would carry out a special military operation.
The Nikkei Stock Average temporarily fell by more than 600 yen, falling below 26,000 yen for the first time in about a year and three months since November 2020.
We have updated the lowest price of this year as the closing price.
In addition, the futures price of "gold", which is considered to be a safe asset that is resistant to emergencies and inflation, hit a new high during the trading hours.
Even in the foreign exchange market, the yen appreciated in the dollar-yen exchange rate.
Although the financial markets were set up in an emergency to some extent, in fact, many investors were surprised when they happened, and there is a growing movement to avoid risks.
VIX reacts
There is an index called the fear index.
It is an index that is said to express the uneasy psychology of investors, and is correctly called the Volatility Index, commonly known as the "VIX Index", which is published by the Chicago Board Options Exchange in the United States.
It is said that there is a strong sense of caution when it exceeds 30, but on the 24th, this index reached 37 (as of 19:00 on the 24th).
This is the level since the US government ordered the embassy staff stationed in Ukraine to evacuate, and the number was 38 on January 25.
Is the energy price soaring?
The worst way to reach the economy in Ukraine is now seen as the impact of energy.
Russia is one of the world's leading energy superpowers.
Natural gas is the second largest producer in the world, and oil is the third largest producer in the world.
Increasing concerns that military conflicts could disrupt oil and gas supplies are likely to lead to higher oil and gas prices.
WTI futures prices in the New York market, which is an indicator of international crude oil trading, have skyrocketed in response to this invasion-related information, surpassing $ 100 a barrel for the first time in 7 years and 7 months.
The impact of rising crude oil futures prices will first affect domestic gasoline prices.
The retail price of regular gasoline as of February 21 is 172 yen per liter on average nationwide.
The price has risen for the first time in about 13 years for 7 consecutive weeks.
In addition, the over-the-counter price of kerosene is also rising.
If the price of crude oil rises, the price of gasoline and kerosene will rise further.
Another headache is the impact on the price of natural gas.
The ripple route to Japan is a little complicated.
The starting point is in Europe.
European countries import about 34% of all natural gas demand from Russia.
Of these, 31% are from pipelines and 3.2% are from LNG = liquefied natural gas.
(From 2020 BP statistics)
The United States, the EU = European Union, and Japan have decided to impose economic sanctions on Russia, but it has been pointed out that Russia may reduce the supply of natural gas by pipeline as a countermeasure in the future.
In such a situation, it is inevitable that the price of natural gas in Europe will rise further.
There are prices that are indicators of natural gas in Europe.
It is an index price called "Netherlands TTF".
This price increase will soon reach the LNG = liquefied natural gas market in Asia.
Japanese power companies import large amounts of LNG as fuel for power plants, but if the situation in Ukraine deteriorates, fuel costs will rise significantly.
Already, the electricity prices for March of the 10 major electric power companies are at the highest level in the past five years when they can be compared.
There is a possibility that electricity prices will remain high in the future.
The influence from grains
Another concern is the impact on Japan via grain prices.
Ukraine is a plain country north of the Black Sea, and is a large agricultural country with a thriving grain production due to its fertile soil.
FAO = According to the Food and Agriculture Organization of the United Nations, ▽ rapeseed export volume is the second largest in the world, ▽ corn is the fourth largest in the world, and ▽ wheat is the fifth largest in the world in 2020.
Japan does not import large quantities of these agricultural products directly from Ukraine, but if Ukraine, one of the major grain exporters, loses agricultural production, more countries will seek the shortfall. Experts also point out that supply and demand may be tight and global grain prices may rise, as in the case of defeating Ukraine.
Global inflation and accelerated monetary tightening?
The world is now suffering from inflation.
With the spread of the new coronavirus, the supply chain is disrupted, labor shortages and wages are rising, and the situation in Ukraine is added, and prices continue to rise in record numbers in the United States and Europe.
Further rises in energy and grain prices could further accelerate global inflation, which could stifle the global economy, which is recovering from the corona wreck.
Also, if inflation accelerates, central banks in each country may tighten monetary tightening.
The US Federal Reserve Board is expected to raise interest rates at its March meeting, but if the pace of interest rate hikes is to accelerate, the interest rate differential with Japan will widen, the yen will depreciate further, and Japan will rise. The possibility of pushing up import prices cannot be ruled out.
Is the situation in Ukraine rising in prices in Japan?
If the prices of energy and grains rise, it may lead to the rise of prices in Japan as well.
If that happens, it will hit the lives of consumers directly.
The prices of a wide range of products such as gasoline prices, electricity prices, flour, bread, and cooking oil have already been raised one after another.
Further price increases will lead to a decline in personal consumption if wages do not rise sufficiently, which will be a major blow to the Japanese economy.
It also affects the local business of Japanese companies
Many Japanese companies are expanding into Russia.
According to the Ministry of Foreign Affairs' survey on the number of Japanese companies expanding overseas, the number of companies expanding into Russia is low. ・ As of October 2020, 421.
Automakers such as Toyota and Nissan have local production bases, and Mitsui and Mitsubishi Corporation are participating in the development of natural gas in the Far East Sakhalin.
In the future, if the situation worsens and economic sanctions are exchanged, there is a risk that local businesses and financing will be affected.
Connected economy
From an economic point of view, I always feel that the world is complicated and firmly connected.
We pray that Russia's military invasion in Eastern Europe will not only hurt locals, but will not put pressure on Japanese consumers' households or adversely affect the performance of companies that have finally recovered from the Corona disaster. While doing so, I would like to convey daily movements.
Ministry of Economic Affairs
Hirotaka Toyonaga Joined the Ministry of Economic Affairs in
1995.
After working at the Ministry of Economic Affairs, General Bureau of the United States (New York), Oha Biz Caster, and Desk of the Osaka Bureau, he is
currently in charge of fields such as energy and industrial policy.