2024-03-22 00:19:00
The Bank of Japan decided to end its negative interest rate policy on the 19th, and the market sees the next rate hike as “quite a while away”, with the yen depreciating to the dollar/yen range of 151 yen on the 21st. So, is the Bank of Japan’s interest rate hike really that far off? The photo shows Bank of Japan Governor Ueda. Photographed at the Bank of Japan head office on the 19th (2024 Reuters/Kim Kyung-Hoon)
TOKYO (Reuters) – The Bank of Japan decided to end its negative interest rate policy on the 19th, and the market expects the next rate hike to be “quite a while away”, with the yen depreciating to a low of 151 yen against the dollar on the 21st. . So, is the Bank of Japan’s interest rate hike really that far off? I would like to point out that the key to this lies in trends in service prices. If a large wage increase pushes up service prices with a certain time lag, I think the Bank of Japan could consider raising interest rates with an eye to the risk of upward price fluctuations.
At a press conference on the 19th, Bank of Japan Governor Kazuo Ueda said, “Based on the current economic and price outlook, the accommodative financial environment will continue for the time being,” and “the expected inflation rate is still a long way from 2%, so easing is expected.” We will conduct policy management while maintaining a stable financial environment.” The market was judged to be dovish, and the yen depreciated.
However, Governor Ueda also said, “If the underlying price outlook rises a little more, it will lead to a rise in the level of short-term interest rates,” and “If the price outlook clearly moves higher or the upside risk increases, that would be a reason to change policy.” .
Although the market ultimately seemed to ignore the implications of this part of the statement, I believe that the Governor’s statement had considerable implications.
I think the hint to unraveling this implication is hidden in the answer to the question about whether the spring labor unions were given a large weight in why the policy was maintained at the January meeting and the decision to lift negative interest rates was decided at the March meeting. .
President Ueda said, “As you said, the first tally of the Shunto was a big factor.However, we have been paying attention to not only that, but also service prices, and we have confirmed that prices in general, including accommodation, are solid. ”, referring to the importance of service prices.
The author believes that trends in service prices will play a large role when the Bank of Japan considers the next interest rate hike.
The wage increase rate in the federation’s first survey was 5.28%, the first time it exceeded 5% in 33 years, but the response from small and medium-sized enterprises was 4.42%, which was significantly higher than many economists expected. In addition, the wage increases for fixed-term, part-time, and contract workers showed high growth of 6.47% per hour and 6.75% per month.
The author predicts that this large rate of wage increase will likely lead to price increases in the service sector, where labor costs account for a high proportion of costs. As a result of the highest wage increase rate in 33 years, the percentage of people who have had “first-hand experience” of a situation in which the increase in labor costs spills over into service prices and causes a series of price increases is likely to be small, not only in the private sector but also in policymakers. is.
Therefore, an overwhelming majority of market participants view the recent rise in service prices as a “special phenomenon” occurring in very limited areas such as accommodation, dining out, and mobile phone charges.
However, significant wage increases could spill over into broader service prices. The fact that service prices have not risen significantly until now can be said to be the result of a Japanese phenomenon that could be described as 30 years of fixed wages. We predict that the large wage increase in 2024 will break through the thick wall of service prices that do not increase, increasing the possibility of a chain reaction of service price increases from summer to fall.
The bus industry, which is already suffering from a serious shortage of passengers, continues to raise fares, with Keio Bus increasing fares from 220 yen to 230 yen starting March 16th, and Tokyu Bus increasing the same amount from March 24th. Odakyu Bus will raise the fare from 220 yen to 240 yen from June 1st.
Two major companies are planning to raise prices for home delivery services starting in April, and this move could lead to price hikes for internet sales, which are increasing their share of the overall retail market. In addition, Duskin has already announced that it will raise prices for housekeeping services and house cleaning services starting April 1st.
In Niseko Town, Hokkaido, many skiers and others come from overseas in search of high-quality snow, and the cost of lodging and eating out has skyrocketed, while labor costs have also skyrocketed due to the lack of people. It is not uncommon for part-time workers to earn more than 2,000 yen per hour, and it has become a hot topic with some reports that some restaurants charge cutlet curry for 3,200 yen. Although Niseko has been covered by the media as a special case, it should be seen as a precedent case where increases in labor costs and service prices are linked.
The consumer price index (CPI) for Tokyo’s wards in February increased by 2.6% compared to the previous year, while the core CPI (compared excluding fresh food) increased by 2.5%. Dividing this into goods and services, goods rose 3.1% and services rose 2.1%.
When the rate of increase in services expands and the overall CPI rises, the Bank of Japan will likely confirm whether this movement is temporary. If the trend is seen to be a ripple effect from wage increases to increases in service prices, there is a high possibility that the next rate hike will be considered.
Will wage increases lead to accelerated increases in service prices? I think it is necessary to closely monitor future trends.
●Background news
・UPDATE 3 – Large-scale easing revision, Governor Ueda “returns to normal monetary policy” For the time being, accommodative environment See more
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