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More food price hikes on the way as increased wheat prices squeeze Japan’s pasta makers

On Thursday, Japan’s leading seller of pasta, Nisshin Foods, announced that it will be forced to raise prices on its pasta, pasta sauce and frozen foods products for consumers, as well as its prices for commercial use products. According to a news release issued by the company, consumer pasta prices will be hiked 15-20%, pasta sauce prices will increase 4-12%, and frozen food prices will be going up from 3-16%.

The company also announced that pasta prices for commercial use will jump 30-40%, frozen pasta prices will increase 15-20%, and pasta sauce will see an 8-12% increase.

The price increases are set to kick in on March 1 of this year. Nisshin cites increases in international wheat prices as the primary factor leading to the decision, as durum wheat prices have doubled since last summer.

We expect that other pasta and flour makers will follow Nisshin’s lead and announce price increases in the coming weeks and months. Although Nisshin is not yet announcing an increase in the price of imported pasta products, it remains a possibility. We’re forced to wonder if the closing price gap between domestic and imported pasta will affect consumer purchasing behavior in the supermarket…

Bank of Japan: May Corporate Services Price Index up 1.4%

The Bank of Japan’s Corporate Services Price Index rose 1.4 percent in May, according to figures published yesterday. This is the tenth consecutive increase in the index, and last month’s pace of growth was the highest seen since July 1992 (when the consumption-tax fueled rise of 1997 is factored out).

Amongst the category headers, transportation prices led the way, up by 6.0 percent. Following that:

• Other services were up 1.0 percent.
• Information services were up 0.9 percent.
• Communication and broadcasting prices were unchanged.
• Leasing and rental was down 1.0 percent.
• Advertising services were down 2.0 percent.
• Finance and insurance fell 0.6 percent.
• Real estate services fell 0.8 percent.

It should be noted that the rise in transportation prices, which drove the overall increase, was attributed to exports of coal and iron ore to China. In other words, Chinese demand certainly plays a role in these figures.

Could that be a mitigating factor that prevents this from being a sign pointing to an August rate hike? Does it matter? The Nikkei’s most recent poll of 33 private sector economists finds 14 expecting a rate hike in August. That’s 42 percent. One even predicted a July rate hike (Ballsy! With the Upper House election and all? This might be someone who’s really in the know.) All of those who answered the poll expect to see an increase in the interest rates before New Year’s time.

Given that two didn’t answer the Nikkei, that puts 45% predicting the August rate hike. Count me in.

Quotes following yesterday’s Cabinet meeting

From Minister of State for Economic and Fiscal Policy Hiroko Ota:

There is some weakness in industrial production, and this situation hasn’t changed. Consumer spending is recovering, but not yet so strong…Japan has not yet entirely escaped deflation…

Finance Minister Koji Omi:

The economies, domestic as well as overseas, are recovering steadily and I personally think, as I have said many times, Japan is not in deflation…I have been saying that the government wants the BOJ to support the economy with policy, although individual rate actions are up to the BOJ…As the minister in charge of getting the government’s fiscal condition back into health, I will act on the assumption that interest rates will rise in the mid- to long-term.

One has to wonder if Omi and Bank of Japan Governor Toshihiko Fukui even bother keeping Ota in the loop. Fukui would obviously survive a sudden end to the Abe Cabinet (his job isn’t tied to the Prime Minister, and he’s due to step down in a few months anyway), and Omi would be likely to do so. Ota? She has a nice warm seat waiting for her back at Keio University and unlike most Cabinet ministers, is not an elected member of Parliament. Also, she’s not a really old guy.

BOJ: No interest rate hike at this time

The first headline in Japanese I came across: 利上げ見送りを決定 - 日銀、景気点検を継続　(Decision: Rise in Interest Rates Seen Off - BOJ to continue monitoring business conditions).

So, the BOJ has not decided to raise rates at this time. At the close of their policy meeting, the governors voted 6-3 against a raise from the current 0.25% overnight call rate.

Then I saw a Kyodo headline in English: BOJ holds off on rate hike by majority vote amid political pressure. The byline to the accompanying photo of BOJ Governor Toshihiko Fukui? BOJ chief Fukui denies political pressure in rate decision.

One supposes that they’re hedging their bets, but with a headline like that, it seems as though they don’t trust Fukui. We’ve discussed the ‘political pressure’ on the Bank of Japan here, and the fact that it was hinted at in public means there was most likely a lot more going on behind the scenes.

Bloomberg brings us a quote from Noriko Hama, a professor of economics at Doshisha Business School in Kyoto:

The impression that they caved to political pressure is unavoidable. It’s not a bad decision, given the statistics, but it certainly does not look good for the BOJ.

I disagree, but who the hell am I? I think it would look much worse if they had raised rates. The BOJ would have come across as an impatient child. And, as we all know, they’ll always have a second chance to make that mistake.

And from Maki Shimizu, an interest-rate strategist in UBS Securities Japan Ltd:

Three board members voted against the decision, leaving the possibility that more members may vote for a rate increase next month.

Wow! Thanks for the lesson in probability. David Hume must be happy.

On a more serious note, here are the words of BOJ Governor Toshihiko Fukui, patched together from various sources:

Our decision this time is solely based on our careful examinations of economic and price conditions. We never discussed factors other than those conditions.

We basically share an outlook that Japan’s economy and price levels will see upward trends, but slightly differ on the need to wait for a while and seek more economic data that will support such a projection.

We have to screen various economic data and weigh their impact on the economy. Even though a specific indicator turns out to be strong, it will not immediately lead to changes in our monetary policy.

The developments in Japan’s economy have so far deviated slightly downward from the outlook.

Our approach is future-oriented, but nonetheless, we focus on economic data at present and of recent past.

I do not especially see the current rate levels in Japan as a disrupting factor in the global market.

Japan’s December consumer confidence survey - ouch!

The Cabinet Office announced today that after reaching a six month high last month, the December consumer confidence survey fell from 48.7 to 45.9 . A figure below 50 indicates that pessimists outnumber optimists. The index measures households with two or more inhabitants (Are singles more likely to be pessimistic?)

That news hurts, though there’s also not much to be proud of in a six month high that was negative. So, what did Bloomberg’s quoted experts have to say about the situation? This gem is from David Cohen, director of Asian economic forecasting at Action Economics in Singapore:

The consumer hasn’t been carrying his weight. The corporate sector is in good shape and that’s supporting capital spending and exports. It’s just the consumer that hasn’t kicked in.

I’m not really sure what to say about that comment, other than it gives the impression of either being taken out of context or horribly ignorant of the fact that wages are not increasing. How loud can I scream it: Take home wages are not increasing!!! (I considered all caps, but standards must be maintained.)

And Hiromichi Shirakawa, chief economist at Credit Suisse in Tokyo:

Income is the key. Japanese consumers aren’t going to start spending because of job security alone.

Thanks, Hiro. At least you’re reading what I say on this site. Then again - no, you’re probably not. It’s obvious enough.

The International Herald Tribune is reporting that it seems as though the Bank of Japan will not be raising interest rates tomorrow.

There’s a link above to the Action Economics, LLC website. Check it out.

William Pesek on Japan in 2007

William Pesek is a longtime Japan observer who often appeals to those who don’t believe the hype, if you’ll pardon my English. In a recent piece at the International Herald Tribune, he questioned the fundamentals behind Japan’s current economic recovery and bets that Japan’s economy, “will shift into a lower gear, disappointing investors once again.”

Pesek goes on to say that, “it may not have occurred to many outside Tokyo yet, but (Prime Minister Shinzo) Abe is in trouble.” I may live close enough to throw rocks at the Tawagawa, but I’m still in Tokyo, and could still hit Nagatacho with a few of those same rocks, Mr Pesek. Trust me, we’ve been taking notice for some time now. Mr Abe is pretty much through and we’re taking office pools on who’s next (Aso? Shiozaki? Tanigaki comes back - or, (gasp) back to Koizumi? My man Takenaka won’t be it, that much is assured.)

Mr Pesek, an otherwise rational man, goes on to say, “The forces of globalization are seeing to it that Japan needs to change to increase growth, not the other way around,” without offering any empirical statistics or clear reasoning behind this view. Some (myself included) may agree with the sentiment, but let’s have some evidence, even if it’s anecdotal. If you think Japan’s leaders are in defensive mode, call a spade a spade.

To rate hike or not to rate hike?

With the next Bank of Japan governor’s meeting scheduled for January 17-18, speculation is rife over whether or not the BOJ will decide to raise interest rates once more. Toshihiko Fukui, the BOJ’s current governor, is clearly itching to raise them; perhaps he wants his legacy to be established as the guy who put Japan on the course toward normalized monetary policy.

But there are plenty of issues standing in his way, with some of them being political. The Abe administration has not come out and said what it thinks should be done, which is a good thing. However, they must be communicating their message through some back channels.

Keidanren is certainly talking up the economy, as related in a Japan Times piece this morning. However, Fujio Mitarai, the chairman of Keidanren, has joined Abe in not making any specific public comments on the rate hike issue. Nobuo Yamaguchi, chairman of the Japan Chamber of Commerce and Industry, however, had this to say:

The BOJ should emphasize that a rate increase is not due to inflation and that it will maintain its easy-money policy.

So…if a rate increase is not undertaken to fight inflation, what is it for? And would that not be dangerous?

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