TOKYO—While the U.S. battles its worst inflation in 40 years, there is still one country where prices aren’t rising as fast as the central bank would like and interest rates are stuck around zero.
It is Japan, where prices in February rose 0.9% from a year earlier and actually fell when volatile fresh food and energy prices were excluded, according to government figures released Friday. Hours later, the Bank of Japan responded by reaffirming its ultra-easy monetary policy.
The central bank’s governor, Haruhiko Kuroda, said inflation may temporarily reach the bank’s target of 2% later this year owing to higher global prices of commodities like oil. But “it doesn’t mean that we achieved our inflation target,” he said, adding that such inflation “does not suggest the need to change the current monetary policy.”
Japan presents a jarring picture when set against the U.S., where inflation hit a four-decade high of 7.9% in February, and the Federal Reserve is penciling in six more rate increases this year after carrying out its first in more than three years on Wednesday. Other central banks are acting similarly, with the Bank of England raising rates this week for the third consecutive meeting.
Some in Japan believe its inflation peace may soon be shattered.
McDonald’s Holdings Co. (Japan), which operates McDonald’s restaurants in Japan, raised the prices of hamburgers, cheeseburgers, Chicken McNuggets and some other items on Monday, citing higher costs of wheat, beef and energy. A regular cheeseburger now costs ¥160, equivalent to $1.35, up from ¥140.
More upward pressures are on the way as higher prices of oil and natural gas filter into Japan’s economy. And the yen is near a six-year low against the dollar, meaning that imports of oil, gas and beef for the hamburgers cost Japan more in yen even when the dollar price doesn’t change.
“Companies, especially those with a global business, have no choice but to raise prices because their competitors in other nations have passed on the higher costs,” said Daiwa Securities economist Mari Iwashita.
But the Bank of Japan isn’t inclined to strike pre-emptively while inflation remains below target. Where Japan differs from the U.S. is its shortfall of consumer demand, which is closely related to sluggish or nonexistent wage growth.
“It may look inflationary on the surface, but in reality, pressure is rather deflationary,” said Shigeto Nagai, an economist at Oxford Economics and a former BOJ official. Companies are paying more for energy and materials but have trouble passing on those costs to consumers, he said.
For now, the Bank of Japan continues to target short-term interest rates at minus 0.1%, and it aims to keep the yield on the 10-year Japanese government bond at around zero, compared with the current yield of more than 2% for 10-year U.S. Treasury bonds.
Mr. Kuroda said prices were likely to start rising at a faster pace after April, when the impact of price cuts last year for cellphone service tapers off.
The inflation would largely be caused by the sudden rise recently in energy prices triggered by Russia’s invasion of Ukraine—not the scenario that the Bank of Japan wants: robust consumer demand and a broad economic expansion that lifts all wages and prices.
In such a situation, the Bank of Japan would be reluctant to squeeze growth with an interest-rate increase that might drive down consumer demand further.
Even McDonald’s is playing the price game cautiously. While it is charging about 17 cents more for a cheeseburger with a single patty, the price increase for a double cheeseburger is only half that amount.
And a Big Mac isn’t going up at all: It is still ¥390, equivalent to $3.29, a steal compared with the $5 or more charged at many U.S. McDonald’s restaurants.
Write to Megumi Fujikawa at [email protected]
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