inflation at 2.8% in August, new high since 2014

The rise in prices is driven by energy and food products in the wake of the war in Ukraine.

Consumer price inflation in Japan reached 2.8% in August year on year (excluding fresh products), according to data published on Tuesday September 20, a new high since October 2014 against a backdrop of soaring energy prices.

Excluding 2014, a period when prices were artificially boosted by a VAT hike, inflation in August was even the highest recorded in Japan since 1991. The August figure was also slightly higher than expectations of the consensus of economists from the Bloomberg agency (2.7%). Without taking energy into account, inflation was more moderate (1.6%), while also being higher than in July, due to the increase in the prices of other products, notably food.

Not yet ripe for monetary tightening

However, these statistics should not immediately move the Bank of Japan (BoJ), whose monetary policy decision is expected on Thursday. The BoJ continues to maintain its rates at levels close to zero, contrary to the other major global central banks, which has caused the yen to fall for several months, particularly against the dollar. Even though its inflation target of 2% excluding fresh food has been achieved since April, the BoJ believes that Japan is not yet ripe for monetary tightening.

Because the rise in prices in the archipelago is essentially driven by external factors (the surge in energy and food prices in the wake of the war in Ukraine) and temporary, according to the BoJ, which would like to see wages increase further to generate a healthy inflation. But this analysis by the BoJ is increasingly criticized, especially since the institution also puts into perspective the negative impact of the fall of the yen on small and medium-sized businesses and Japanese consumers, which makes it unpopular in the same way than the Japanese government.

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