Japan Confronts Rising Inflation Amid Reduced Energy Subsidies

Tokyo, Japan – Japan’s consumer inflation witnessed a 2.9% year-on-year increase in October, marking a notable shift as the government reduced subsidies for electricity and gas bills. This rise in inflation, primarily driven by decreased government support in energy sectors, is a significant move for the world’s third-largest economy, coming after a 2.8% jump in September. Notably, this figure excludes the often-volatile fresh food prices.

Key Developments in Japan’s Inflation Scenario
Energy Subsidies Reduction: The Japanese government had been subsidizing gasoline costs since January 2022 and electricity and gas bills from early this year. However, in a significant shift, they reduced the subsidy amounts for electric and gas fees starting October, while continuing the aid that was initially set to end in September.

Excluding Fresh Food and Energy: When fresh food and energy are excluded, Japan’s prices saw a 4.0% rise, according to the internal affairs ministry data. This indicates that the core inflation rate, which omits these volatile components, is running even higher.

Historical Context: This recent data marks the first time since August 2022 that inflation slowed to below 3%.

Government Response to Inflation: In response to the rising inflation, Prime Minister Fumio Kishida announced a substantial stimulus package exceeding $100 billion, aimed at mitigating inflationary pressures. The supplementary budget for this package is expected to pass the Lower House.

Global Factors and Currency Impact: Japan, like other global economies, has experienced price rises due to the ongoing Ukraine war. Additionally, a weaker yen has escalated the cost of imports, further fueling inflation.

Monetary Policy Stance: In contrast to other major central banks that have increased interest rates in response to inflation, the Bank of Japan maintains its ultra-loose monetary policy. This approach is based on the expectation that inflation will eventually ease, but it has added to the pressure on the Japanese yen.