Prices in Japan set to rise 2.6% in fiscal 2022 amid Ukraine crisis

Japanese consumer prices, including fresh produce, are expected to rise 2.6% in the current fiscal year to March from a year earlier, mainly due to the invasion of Ukraine by Russia and the impact of the depreciation of the yen, the Cabinet Office announced on Monday.

It also revised Japan’s real gross domestic product growth down to 2.0% from the previous estimate of 3.2% released in January.

Japan’s consumer price index forecast for this fiscal year has been raised from the previous outlook of a 0.9% increase and represents an increase from the 0.1% growth in the last year.

Japanese Prime Minister Fumio Kishida (2nd from L) speaks during a meeting of the Economic and Fiscal Policy Council at his office in Tokyo on July 25, 2022. (Kyodo)

“Rising prices are a risk for the economy recovering from the coronavirus pandemic,” Prime Minister Fumio Kishida said at a meeting of the Economic and Fiscal Policy Council, where the projections were presented.

Russia’s war in Ukraine has pushed up energy and food prices around the world, with Japan feeling higher costs for imported goods since the yen’s recent rapid depreciation to 24-year lows by against the US dollar.

At the meeting, private sector board members, including Masakazu Tokura, head of Japan’s largest business lobby, the Japan Business Federation, called on the government to take action to encourage companies to raise wages in order to mitigate the impact of rising prices.

Wage growth in Japan remains slow compared to other countries, with a 1.86% increase in large companies in 2021, according to data from the Japan Institute for Labor Policy and Training.

Measures to boost aggressive investment in people will also be key to putting the world’s third-largest economy back on a path of sustainable growth, the private sector members said.

Kishida said the government will seek to boost the momentum of wage increases to ensure it becomes a more solid and sustainable trend.

To prevent consumption from slipping amid soaring prices of essential goods, the government has pledged to take necessary measures, including giving reward points to households that reduce their electricity consumption and helping farmers struggling with high fertilizer costs.

The government plans to spend a total of about 260 billion yen ($1.9 billion) on the countermeasures from a reserve fund.

For the financial year 2023, the Cabinet Office forecast a CPI increase of 1.7%. He expects crude and other energy prices to remain high.

The Bank of Japan estimated that prices, excluding volatile fresh food, will rise 2.3% in the current fiscal year.

The downward revision to real GDP was attributed to weaker than expected consumer and capital spending. The government cut its private consumption outlook to 3.6% growth from 4.0% and cut its capital expenditure forecast to 2.2% from 5.1% previously.

Japan’s nominal GDP growth forecast has been cut to 2.1% from 3.6% in the current fiscal year, while the government estimates that the country’s real GDP should expand by 1.1% to reach 554.7 trillion yen in fiscal 2023, surpassing the record of 554.3 trillion yen in fiscal 2018.

The main economic council includes members of Kishida’s cabinet, BOJ Governor Haruhiko Kuroda and business leaders.

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Christi C. Elwood