Key points:
Yen not going anywhere
Rice prices rise
BoJ’s inflation problem
Rice inflation is not simply on a tear — it’s ripping, up more than double in a year. The Bank of Japan’s job just got even more complicated.
🥛 Yen’s Fragile State of Mind
The USDJPY pair wasn’t really going anywhere Friday morning, i.e. trading sideways, after the latest batch of news added to a worrying string of price data for Japan. The dollar-yen was moving flat near ¥145.40, showing no signs of volatility or any desire to do anything.
In May, the consumer price index showed prices increased by 3.5% year on year. The core showing, which strips out fresh food prices, advanced 3.7%, marking the highest print since 2023.
What’s more, it was the 38th consecutive month where inflation has been running above the Bank of Japan’s 2% target. But that’s not the main news. Rice — now that’s the main news.
🔥 Rice Prices Skyrocket — Why?
Prices of rice, Japan’s staple food, increased 101.7% in May from last year, marking their largest annual jump in over 50 years. The growth tops up the enormous surge logged in April, 98.4%, and in March, 92.1%.
Why are rice prices out of control? The grain is produced mostly by elderly people in small farms. That’s because there’s a policy that prevents big corporations from entering the local market. But when demand spikes and the farms can’t keep, prices soar.
Another key metric, the so-called “core-core” inflation rate, which strips out prices of fresh foods and energy, advanced 3.3% from 3% in April. It’s also the metric closely watched by the Bank of Japan.
😲 BoJ and Its Big Inflation Problem
Speaking of the Bank of Japan, the economic situation is slowly creeping up on it due to its firm (and stubborn?) stance on interest rates. Earlier this week, officials voted to keep rates on hold to allow the ultra-loose monetary policy to do its thing — support economic growth on the back of soaring inflation.
Bank of Japan governor Kazuo Ueda told parliament last week that central bankers will raise interest rates “once we have more conviction that underlying inflation will approach 2% or hover around that level.”
Until then, there’s little to support the Japanese yen in its exchange gymnastics across the forex board. Low interest rates are generally bearish for the local currency as they eat into its ability to return attractive yields.
