As world economies fight inflation, Japan still chases it
Surging prices are haunting consumers and confounding economic planners in the U.S. and other countries, but not in Japan, where sparking inflation has proven an elusive goal.
While the Federal Reserve and most other central banks are shifting into inflation-fighting mode, the Bank of Japan on Friday said it would scale back corporate bond purchases to pre-pandemic levels. But it will continue pumping tens of billions of dollars into the economy in hopes of eventually attaining its elusive 2% inflation target and getting the economy to grow faster.
With outbreaks of the omicron variant of coronavirus looming in many parts of the world, “high uncertainties” persist, it said.
The chances of hitting that target anytime soon remain “slim,” Marcel Thieliant of Capital Economics said in a report. “The upshot is that the Bank of Japan will remain among the few central banks that won’t tighten policy for the foreseeable future.”
Inflation was 0.1% in October. Excluding volatile food and energy prices, it was negative. The BOJ is forecasting 0% inflation for the fiscal year that ends in March.
By contrast, U.S. consumer prices grew 6.2% in October over the previous 12 months, the most in three decades.
During the pandemic, the Federal Reserve and other central banks unleashed a barrage of monetary stimulus similar to Japan’s, taking interest rates to record lows in some cases. Now that the U.S. and other economies are on the mend and prices are surging, the Federal Reserve and other central banks are moving to wind that down without snuffing out economic recoveries.
With U.S. inflation nearing a 40-year high, Fed policymakers on Wednesday announced plans to shrink the central bank’s monthly bond purchases twice as fast as earlier planned. That puts it on a path to begin raising interest rates within the first half of 2022.
Japan’s economy began slowing in the early 1990s with the collapse of a financial bubble and has never really regained momentum. Companies are wary of hiring, raising salaries or investing, given the bleak growth outlook for a country whose quickly aging population is shrinking. Combatting deflation, or falling prices, has been the priority.
For nearly a decade, the Bank of Japan has been buying massive amounts of government bonds and other assets to keep borrowing costs in the world’s third-largest economy near zero and, theoretically, entice consumers and companies to spend more to beat future price increases.
The benchmark interest rate has been at minus 0.1% for years.
Rents are still roughly where they were 30 years ago and prices for most consumer goods have risen, but not by as much as elsewhere.
But even Japan, which imports much of what it consumes, is not entirely immune to the surge in prices across the globe, and some of the higher costs being paid by consumers elsewhere may just be slow to catch up.
Wholesale inflation hit its highest level in 40 years in October, at 8%. Manufacturers and farmers are feeling the squeeze of rising costs, especially for fuel.
Costs for gasoline, and other fuels, electricity and gas rates have been creeping upward. Some food brands have announced plans to raise prices next year.
And then there is “stealth inflation,” as manufacturers plump their profit margins by selling less of the same products — candy bars, boxed lunches, tissues and rice balls, for example — for the same prices.