The war in Ukraine and the pandemic have together achieved what decades of Japanese central bankers have struggled to do: boost prices in a stagnant economy.
Asked if he had felt the impact of inflation during a recent parliamentary hearing, incoming Bank of Japan governor Kazuo Ueda said he could no longer buy a lunchbox at his university convenience store with a single ¥500 ($3.70) coin.
The one-coin meals have long been a symbol of Japan’s struggle with deflation, but ¥500 is no longer enough to buy a Tomica toy car or a tempura bowl in Tokyo. Prices of some chocolate bars and sukiyaki sauce are rising for the first time, while subway fares will increase next month for the first time in nearly 30 years.
Prices in Asia’s most advanced economy have risen at their fastest rate in four decades, a challenge for Ueda as he navigates monetary policy, as well as for capital markets used to the Bank of Japan’s bond buying, and a shock for consumers used to long-term deflation.
Fuku, a 64-year-old pensioner in Tokyo, said she now only buys goods on sale. “My husband and I are now jobless and without any income, so we are worried about the future if prices continue to rise,” she said.
Japan’s core consumer price index has surpassed the Bank of Japan’s target for nine straight months, rising at a rate of 4.2 per cent in January. While Ueda says inflation is likely to have peaked, as government subsidies for electricity and gas kick in, many remain anxious about further price increases.
In a sign that inflation could last longer than expected, consumer prices, excluding volatile food and energy prices, rose at a rate of 3.2 per cent in January, the fastest pace since 1990.
Three everyday items tell the story of inflation in Japan, its impact on consumers and businesses and Tokyo’s challenges in its search for sustainable price growth.
Karaage-kun chicken nuggets からあげクン
For many, the reality of inflation hit home when Japanese convenience store chain Lawson increased the price of its karaage-kun chicken nuggets by 10 per cent to ¥238, the first price bump since the company’s best-selling product went on sale in 1986.
Lawson blamed the higher price on the soaring cost of raw materials as well as packaging and transport. “We wanted to continue with the same price, but all the other price increases became unmanageable,” a spokesperson said.
The war in Ukraine, a nation that is one of the biggest suppliers of wheat, sent global prices soaring and pushed up the cost of imported flour, which Japan depends on for roughly 90 per cent of its consumption.
This has also made domestic wheat flour, which karaage uses, more expensive. The average auction price for this year is set to be about 30 per cent higher than a year earlier, according to the National Rice Wheat and Barley Improvement Association.
Inflationary pressures are expected to continue. Data provider Teikoku Databank has forecast a price rise in more than 15,800 Japanese food items by April, with an average price increase of 16 per cent.
Even after raising prices, Ryuji Yamaguchi, the 48-year-old head of a tofu maker in the northern island of Hokkaido, is struggling to cope and fears his customers will balk at another price rise this summer.
Last year, Yamaguchi increased prices by up to 10 per cent to cover the rising cost of imported soyabeans, which the company relies on for 60 per cent of its tofu products.
But with the price of imported soyabeans tripling since Yamaguchi joined his grandfather’s group in 2000, the company has continued to generate losses. “The price increase [last year] was a bare minimum for us to keep our business going,” said Yamaguchi, whose company supplies local supermarkets, schools and hospitals.
Another issue on the horizon is higher wages. With the food industry under so much pressure, his employees are not expecting higher pay yet, Yamaguchi said, but for now he has tried to compensate by shortening working hours.
Yamaguchi’s situation is symbolic of Japan’s broader struggle to create a cycle of rising wages, consumption and prices. “What global investors want to know the most at the moment is at what point does the BoJ finally believe that it is able to sustainably achieve its 2 per cent inflation target,” said Ayako Fujita, chief Japan economist at JPMorgan Securities.
While large companies such as Toyota, Nintendo and Uniqlo owner Fast Retailing have increased pay, the country’s small and medium-sized companies have struggled to do so. Unlike the US, inflation in Japan’s services sector has been weak due to the lack of strong wage growth.
“Uncertainty is high as to what extent wages will rise,” Junko Nakagawa, a BoJ policy board member, said in a speech this month. “If the behaviour and mindset based on the assumption that wages will not increase easily remain deeply entrenched, there is a risk that moves to increase wages will not strengthen as much as expected.”
Toto’s Washlet bidet ウォシュレット
The weaker yen, supply chain disruptions caused by Covid-19 and rising fuel and logistics costs have boosted consumer electronics prices across the board. The prices of items such as refrigerators, rice cookers, toasters and Sony’s PlayStation 5 gaming console have all risen in Japan, even if they have not elsewhere in the world.
Inflation has also hit the bathroom, with Japan’s largest toilet maker Toto — which makes roughly $5bn in annual revenue — announcing in January that it planned to raise the price of its flagship Washlet bidet seat by up to 8 per cent from August. The 106-year-old company already raised bidet prices by up to 13 per cent last October.
Following a pandemic panic over toilet paper shortages, sales of Toto’s electronic bidet shot up in the US and the company had difficulty procuring chip components. While this supply chain issue has been resolved, Toto has come under pressure from rising prices of materials such as resin and copper.
“Because it’s Japan, Toto had to explain the efforts it is making to bring down costs in order for consumers to accept the price increase,” said Hiroki Kawashima, an analyst at SMBC Nikko Securities.
Toto has installed more robots to bring down manufacturing costs, but its efficiency drive has not been enough to offset the blow from soaring raw material prices.
The challenge facing Ueda will be to ensure Japan does not fall back into deflation and that inflationary pressures do not spiral out of control.
“Even if it was a result of an external shock, it’s a huge progress that people were able to confirm that prices and wages can go up in Japan. It’s a hard-won asset that Mr Ueda probably thinks he cannot lose,” said Tetsuya Inoue, a former BoJ official who worked as Ueda’s secretary and senior researcher at Nomura Research Institute.