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Japan’s Wholesale prices up 5.6% in June, highest rise since 1981

On Thursday, the Bank of Japan released its corporate goods price index data for June, and the trend of rising producer prices is only intensifying. Wholesale prices rose 5.6% from the previous year in June, which follows a 4.8% climb from May.

June’s rise was the highest seen in 27 years. We have to go back to February 1981, when the index rose 5.7%, to see a higher figure. According to the data, producer prices for petroleum and coal products increased 36.5% year-on-year, while while prices for iron and steel products jumped 18.3%. The only other categories to see a rise above the 5% level were pulp and paper (6.8%),metal products (6.0%), electric, power, gas and water (5.6%) and processed foods (5.3%).

On the other hand, declines were seen in the prices of information and communications equipment (-6.0%), lumber and wood (-5.4%), nonferrous metals (-3.1%), electronic components and devices (-2.8%), and electrical machinery and equipment (-0.8%). Read more

Bank of Japan Lifestyle Survey: 89% expect higher prices over the following year

The Bank of Japan released the 34th edition of its quarterly lifestyle survey last Friday, and one result that immediately catches the eye is that 88.9% of those surveyed reported that they expect consumer prices to rise further in the coming year. This figure was 2.9% higher than the last survey done in February and March, and is the highest figure ever seen in the survey’s history (dating from March 1997).

The survey’s first question might be its most worrying. When asked whether lifestyle conditions now were better than a year ago, only 1.7% responded they were better, while 28.8% said they had not changed and 69% replied that they had gotten worse. In December, 45.5% had reported conditions being worse, while in March that figure had shot up to 60.1%.

When asked if lifestyle conditions would be better a year from now, only 2.2% replied that they expect improvement, while 36.9% expected no change and 60.5% saw things getting worse. In March, 47.3% had said they expected conditions to worsen.

When asked about income, 7.7% reported it had improved over the past year, while 46.4% reported worsening conditions. Only 5.9% expect to see an increase in income over the coming year.

Back to prices: When asked what percentage increase they expected, the median reply came to a 7% increase in consumer prices over the coming year. That answer was 2% higher than the previous survey. Interestingly, respondents anticipating a fall in land prices increased, with 29.8% saying they expect a fall in prices while 22.4% say they expect an increase.

Although the survey does not go into great detail over consumers’ feelings on the economy and lifestyle conditions, we do know that Japan’s core (minus fresh food and energy) consumer prices still look deflationary (Our recent post on that is here, and Claus Vistesen has further explored the matter here). Consumers have been stung primarily by higher energy and food costs, and firms seem yet to have passed these costs full-bore to the consumers in other areas.

Do Japan’s workers and consumers have much justification in this pessimism? As Claus points out, “The amount of small-cap companies, who constitute 70% of the Japanese workforce, filing for bankruptcies rose 18% in the year ending March.” It’s difficult to imagine wage growth assuming an overall trend in such an environment, and thus one is forced to wonder whether non-energy and food price hikes are only a matter of time.

Corporate Services Price Index up 0.5% year-on-year in April

According to data released today by the Bank of Japan, the corporate services price index rose in April for the 21st consecutive month, showing a 0.1% gain against March and a 0.5% gain when compared to April 2007.

Driving the rise were increased transportation and industrial machinery leasing costs, as well as office space rental in the Tokyo area. In particular, ocean freight prices increased 14.1% on average, ship chartering services were 5.8% higher, and domestic air freight charges were up 5.7% against a year ago.

Mobile telecommunications services posted an 8.7% drop, showing the largest fall of any single service category.

Certainly, inflation in services costs is lagging behind that in the price of goods. In each of the four months reported thus far for 2008, the year-on-year change has been below 1.0 percent, while in each of the eight months preceding those, the increase had been over 1.0 percent, hitting 1.5% in three months.

From FY1998 to FY2005, Japan’s corporate services price index fell every year. It finally picked up by growing 0.2% in FY2006, and followed that with 1.1% growth in FY2007.

Read JEN’s Ken Worsley in Central Banking Quarterly

A quick announcement: Japan Economy News editor Ken Worsley’s most recent article has been published in the May edition of Central Banking Quarterly, a publication of Incisive Media in London.

The article deals with the fiasco surrounding the recent appointment of a new Bank of Japan Governor, and details how the shifting political scene in Japan has affected and will continue to affect the nexus where government and finance intersect. Although it may seem simple to consider the fight over the appointment of a new BOJ Governor to be a mere proxy war between the ruling and opposition camps, much more is brewing behind the scenes in Nagatacho and the ideal that the BOJ is independent of the government continues to be undercut.

Shirakawa to be nominated for vacant Bank of Japan Governor post?

Yes, the Bank of Japan still has no Governor, and the next G7 meeting of finance ministers and central bankers kicks off on April 11, just over a month from now. The Nikkei is now speculating that a third candidate for the governorship may be nominated as early as tomorrow, though it could happen next Monday. If this schedule is followed, the new BOJ Governor could be fully approved by the middle of next week.

Interestingly, the Nikkei also speculates that Deputy Governor (and acting governor) Masaaki Shirakawa could be the nominee. This would be an interesting about-face for the ruling Liberal Democratic Party, who just over a week ago was dismissed by the ruling camp as a candidate on the grounds that it would be “inappropriate” to elevate someone who had just been handed the Deputy Governor position to the head of the bank. Read more

Political fallout over the Bank of Japan Governor debacle hitting the press, for better and worse

Thanks to astute reader Garrett DeOrio for pointing out that the Yomiuri is currently on something of a roll with it’s odd editorials. The piece he links to begins with the headline, [DPJ] should absorb lessons from failed ‘Republican Revolution’, in reference to the events following the 1994 US midterm elections. My favorite part was this:

At a meeting with (Prime Minister Yasuo) Fukuda, who is also president of the Liberal Democratic Party, in November, DPJ leader Ichiro Ozawa agreed to form a grand coalition with the LDP because he apparently had taken [political] difficulties into consideration. However, since Ozawa gave up on the idea of forming a grand coalition after strong opposition from DPJ lawmakers, the DPJ has gone over the top in dealing with Diet business.

And who was the vested interest behind setting up this bound-to-fail meeting?

Mr DeOrio promises to have a fuller commentary on the piece up soon over at Trans-Pacific Radio.

Meanwhile, over at the Japan Times, Kevin Rafferty has published the most incisive take yet seen on the BOJ Governor nomination debacle - and more importantly, what it means for the future. In a piece entitled Scary signs in BOJ debacle. Two paragraphs in particular stood out to me:

The fact is that the BOJ governorship is a mere blip when it comes to the real economic and political challenges that Japan has to face over the next few decades, and if the leaders flunk them, as they have flunked the simple BOJ test, the country is in for a really rocky ride downhill…

…Above all there is a need for debate, exploration of the options, learning from the successes and the failures of other countries. Yet there is no sign of any creative or imaginative thinking to tackle pressing problems. And in the case of the BOJ governorship, no sign of any thinking at all.

This article puts things in a broader perspective, and is unafraid to assert that the ruling party is just as much, if not more, to blame for the current mess than the opposition is. It deserves a full read.

Yomiuri piece on the Bank of Japan Governor debacle is dead wrong

As everyone who follows Japan’s economy already knows, the Bank of Japan’s top position is currently vacant. The story behind the story is richly complex, and is turning out to be a fascinating saga offering a very helpful glimpse into the current state of Japan’s political machinations. Claus Vistesen recently described the debacle as being “better than Shakespeare.” I like this comparison because it truly is difficult to tell whether we’re watching the unfolding of a tragedy or a comedy. It is the end of the fourth act, and we’re still wondering whether the play will end with everyone dead, the stage covered in blood, or if the curtain closing will bring about some unexpected union of unsuspected soul mates.

With that in mind, today’s Daily Yomiuri printed an article on its front page that we have long been waiting for. This piece, a blatant editorial disguised as analysis placed amongst the news of the day, is so profoundly misguided that we need to break it down and look closely at how the Yomiuri is attempting to manipulate events into its own worldview. Near the opening, the article tells us that the global economy is not currently experiencing the best of times:

…[T]his is a fire of considerable proportions–the dollar has sharply dropped; share prices are hovering at low levels; and crises involving major financial institutions have surfaced in quick succession.

This is all very true. The author, however, seems to be under the illusion that American policymakers have somehow acted laudably in their attempts to fight the “blaze” on the other side of the Pacific:

U.S. financial authorities have started to extinguish the fire in a bare-knuckled fashion, employing both financial and fiscal measures. This was symbolized by U.S. President George W. Bush, who said, “And when need be, we will act decisively,” meaning emergency actions are necessary when an emergency occurs.

On Tuesday, the U.S. Federal Reserve Board cut its federal funds rate for the sixth time since last summer, marking a total reduction of three percentage points.

This is a prime example of “action taken at a time of emergency” and signals the strong U.S. determination and sense of responsibility vital to prevent chain reactions occurring in response to events in the global market.

Yet few pundits in the US agree with this viewpoint. We won’t get into all the reasons for that here, but anyone should recognize that holding up the words of George Bush as an example of solid crisis management is material for the theatre of the absurd.

The author moves on to score easy points by picking the low fruit on the tree: Read more

It’s official: Tanami rejected by Upper House as Bank of Japan Governor

As was expected, the opposition controlled Upper House has voted to reject Koji Tanami as Japan’s next BOJ Governor. For the first time since the end of the Second World War, Japan will be without a central banker when Toshihiko Fukui steps down in a few short hours.

Current BOJ Policy Board member Kiyohiko Nishimura, however, has been approved as a Deputy Governor, having received votes from all parties in the Upper House except for the Communist Party. Mr Fukui will thus be in position to choose who will be the acting Governor from tomorrow, and he is expected to go with Masaaki Shirakawa, a former Executive Director of the Bank of Japan who was approved as Deputy Governor last week.

Tanami’s chances look bleak; will the BOJ have to settle on an interim governor for now?

With current Bank of Japan Deputy Governor Toshiro Muto already having been rejected by the opposition controlled Upper House for the post of Bank of Japan Governor, Prime Minister Yasuo Fukuda seems to have set a second candidate up for failure, as the Democratic Party of Japan appears certain to reject Koji Tanami, the governor of the Japan Bank for International Cooperation, should his nomination come up for vote in the Upper House today.

Fukuda’s mistake appears to have been not only his choice to nominate another former Vice Finance Minister, which the Democratic Party of Japan holds is merely an attempt to provide golden parachutes to former ministry officials, but to have made another nomination without clearing it with the opposition. Shisaku has provided some advice for the Prime Minister, imploring him to pick up the phone and get things done himself:

Stop hoping beyond hope that the deadbeats, lunatics, fanatics and sycophants about you are finally going to buckle down and do the jobs you have been asking them to do since September…

You have a newspaper journalist as your finance minister. You have no central banker. The dollar is at 97 yen. The stock market is flopping about like a fugu on pavement.

Fukuda and his ruling party, have, however, moved one small step closer to stocking the bank’s leaderships positions: Kiyohiko Nishimura, a current member of the BOJ’s Policy Board, has been given the green light by the DPJ, and his approval should be quick in coming.

Will there be a vacancy at the top of the Bank of Japan? It’s starting to seem inevitable, as today is Toshihiko Fukui’s last day on the job, and the LDP and DPJ still seem to be quite some distance apart on choosing a candidate that will get approved by both houses of the Diet. This morning’s Nikkei is projecting that Masaaki Shirakawa, a former Executive Director of the Bank of Japan who has already been approved as Deputy Governor, will assume the role of acting governor until a replacement for Mr Fukui is found.

An acting governor, however, would be unlikely to be allowed to participate in G7 meetings, which means Japan needs to get someone in that position before the next G7 meeting for finance ministers and central bankers in April.

Reappointing Toshihiko Fukui as Bank of Japan Governor: The last option?

This morning, the Nikkei published an opinion piece entitled “Reappointing Fukui As BOJ Governor Emerges As Option”, which included this passage:

No recent BOJ governor has served a second term. As the nearly two decades of Alan Greenspan’s Federal Reserve chairmanship impressively demonstrated, however, there is nothing wrong with having a long-serving central banker as long as the person has the “right stuff.”

If the government cannot quickly find a good alternative to Muto, who is unlikely to be approved by the opposition camp, it should consider keeping Fukui on for another five years.

Interestingly, the Nikkei’s title includes the phrase, “Emerges as Option,” although no source for this option is cited in the article. Is the Nikkei floating this idea on its own, or is this the brainchild of someone in touch with a Nikkei Press Club member?

A bit more has been written on this issue, and other happenings in the Diet, over at Observing Japan.

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