Japan families brace for further price hikes as weak yen, inflation elevate 'uncertainty'

As the Japanese yen slumped to a 24-year low against the dollar, Japanese consumers and companies are bracing for more price hikes, especially for daily goods and staples, for the rest of the year as analysts warn of more yen instability ahead.

The yen hovered at about 140 to the US dollar on Friday morning, after it sank to a 24-year low in New York overnight.

For the average Japanese consumer, the weak yen is being reflected in their weekly grocery bill, said Martin Schulz, chief policy economist for Fujitsu's Global Market Intelligence Unit.

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"The price of food pretty much across the board is rising, with the cost of imports up and even a lot of domestically produced foodstuffs also rising as livestock depend on imported feed, for example."

Tomoko Ooko, a homemaker who lives in Saitama Prefecture north of Tokyo, had feared a jolt to the economy earlier in the year, with the continued impact of the coronavirus pandemic and the Russian invasion of Ukraine.

The former bank worker said it was clear that a downturn was coming and has begun to cut little luxuries - a pack of expensive coffee beans, eating out, additions to her wardrobe - that she used to enjoy.

The Japanese government has attempted to calm growing fears over the state of the yen, with Chief Cabinet Secretary Hirokazu Matsuno saying on Thursday that rapid fluctuations in the value of the yen were "undesirable" and that currency rates should "move stably, reflecting economic fundamentals".

Finance Minister Shunichi Suzuki echoed that position on Friday morning, telling reporters that the government was monitoring the yen's movement "with a heightened sense of vigilance" and that the authorities would take "appropriate action" in conjunction with other governments if the need arises.

Details of the "appropriate action" under consideration have not been fleshed out.

The Japanese currency has been weighed down by expectations that the US government will continue to raise interest rates to combat inflation, and as the Bank of Japan remained committed to its ultra-loose monetary policy.

The consequent gap between interest rates in the US and Japan has encouraged investors to sell their yen, which until recently was widely seen as one of the world's best "safe-haven" currencies, analysts said.

"Japan is in a new situation now as the government here used to be more concerned about a yen that was too strong, which was bad for exporters, but they have rarely before had to worry about a weak yen," said Schulz.

"In the past, the yen has always been a safe-haven currency that would also appreciate, but that has changed this year due to the recent global crises, including the war in Ukraine and the economic slowdown in China," he said.

The weak yen is also worrying investors and manufacturers that rely on imports or components that need to be brought into Japan, while prices of raw materials have also risen, Schulz pointed out.

A trip to the supermarket also costs more now compared to the start of 2022, said homemaker Ooko. "I think there was a sort of optimism then that the worst of the pandemic was behind us and that things would be effectively back to normal by the summer."

"If anything, it's worse now and I sense people are being more careful with their purchases," she added. "For many people, it's the uncertainty of not knowing when things are going to return to how they were."

Those fears have been underlined by a report released by analysis firm Teikoku Databank, which surveyed 105 major food producers across Japan and concluded that prices of nearly 10,000 food items will increase in the next three months, in addition to the 10,000 items that have already become more expensive to buy, the report added.

The companies expect prices to rise by an average of 14 per cent, while many companies did not rule out the possibility of more price hikes later in the year or in early 2023.

Most firms attributed higher prices to the rising cost of ingredients and raw materials, along with higher costs for fuel for transport. Inevitably, they said, those higher prices have to be passed on to the consumer.

Economist Schulz remained confident that the situation will begin to turn around in early 2023, even as predicting trends in currency exchange rates is a "notoriously difficult art".

"The government has announced that it is letting more tourists into the country from next week and not requiring them to have a negative PCR test, so that will be a huge source of income and more international currency flowing into Japan, which should help the yen," he said.

He also expects the Japanese economy to receive a boost from improved economic conditions in the US and as global supply chain woes are resolved.

This article originally appeared on the South China Morning Post (SCMP).

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