Japan Maintains Monetary Easing Despite Inflation Reaching 40-Year High

A man looks at a shop at the Ameyoko shopping district in Tokyo, on May 20, 2022. Kim Kyung-Hoon/Reuters

Japan’s core consumer inflation rose 3.6 percent in October, the highest level in 40 years, driven by a weaker yen and rising import costs as the central bank kept its monetary easing policy in place.

The nationwide core consumer price index (CPI), which excludes volatile fresh food items, exceeded the Bank of Japan’s (BOJ’s) 2 percent target for a seventh consecutive month, Kyodo News reported.

This is Japan’s highest CPI increase since the 1982 Middle East crisis when the Iran–Iraq war disrupted the crude oil supply. But the BOJ views recent inflation as only temporary and that it will improve in the next fiscal year.

BOJ Governor Haruhiko Kuroda reiterated the need to maintain the bank’s monetary easing policy to support the country’s economy and achieve price stability.

The BOJ maintains long-term interest rates around zero and short-term rates at minus 0.1 percent.

“At this point, we cannot say our 2 percent price stability target has been achieved stably and sustainably, accompanied by wage growth. It will unlikely be attained in the next fiscal year, so monetary easing should continue,” Kuroda said in Parliament.

The government’s data showed raw-material price rises and the yen’s weakness had driven a 15.2 percent increase in energy costs, while food excluding perishables was up by 5.9 percent, the fastest increase since 1981.

Among food items, 88 percent were more costly than a year before, led by alcoholic drinks. Prices of durable household goods increased by 11.8 percent, driven by rising raw material prices and a weak currency.

Economic Package

Japan’s Prime Minister Fumio Kishida said in October that his government will spend 71.6 trillion yen ($485 billion) on economic stimulus to help households and businesses cope with inflationary pressures amid a weak currency.

Kishida said that the economic package is expected to increase Japan’s GDP by 4.6 percent and reduce consumer prices by 1.2 percent over the next year.

It includes a supplementary budget of $29.1 trillion yen ($200 billion) to extend support to households and reduce utility bills. Kishida said that his government will also provide 100,000 yen ($680) for each pregnant woman.

“We are targeting energy prices, a major factor behind the recent inflation, and curb rising prices in a visible way,” he said at a press conference.

Of the total stimulus package, Kishida said that his government will set aside 6 trillion yen ($40.7 billion) for energy-related measures and extend support worth 45,000 yen ($305) to each household.

Reuters contributed to this report.