Japan’s Inflation Is Not Significantly Affected by the Yen’s Depreciation

Japan’s inflation is not significantly affected by the yen’s depreciation. A specialist in currencies and pricing claims that Japan’s important price indicator has not been much affected by the recent steep decline in the yen value.
Yuri Sasaki, an economics professor at Tokyo’s Meiji Gakuin University, claims that since the yen started sharply declining against the dollar in March, core inflation has only increased by roughly 0.4 percentage points. From about March, the yen’s value versus the dollar began to fall sharply. Her study’s findings support the Bank of Japan’s position that changes in currencies shouldn’t affect the course of central bank policy because they don’t significantly affect inflation.

Kuroda Maintains a Loose Policy on the Yen

Until this point, Governor Haruhiko Kuroda maintained his position that policy should never target foreign currency rates and that Japan’s economy could benefit more from extremely low rates. He stands out among his colleagues in a world where central banks are rushing to raise rates to control inflation.

In an interview last week, Sasaki said that finding the consequences of supply-side shocks is more crucial than examining the lower yen. According to her, the yen’s decline has a “very, really little” impact on inflation. According to her calculations, a 1% decline in the yen value relative to the dollar raises the core consumer price index by 0.02 percentage point.
Nevertheless, because the national core CPI has exceeded the Bank of Japan’s target rate of 2 percent for the past two months, speculation about a normalization by the central bank is likely to persist. In contrast to earlier oil price booms and yen depreciation, Sasaki said, the current inflation is beginning to have a more prolonged impact from supply-side shocks and commodity price hikes. She said as the economy grows more substantial, there will be more efforts to raise salaries.

It’s crucial to prevent domestic demand and consumer spending from slowing down during the ensuing several years. She said, “We’re witnessing movements against the idea that prices don’t shift…I don’t see a reason why just Japan would have a return to zero inflation.”

The yen remains unaffected by internal or external forces and is set to maintain its upward trend.

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