Japan’s core customer rates might be approaching the reserve bank’s 2% target, however seasoned business owner Ernie Higa states it’s not time to cheer yet.
“When you talk about inflation, it’s kind of like cholesterol – there’s good cholesterol and bad cholesterol – what we’re experiencing now in Japan is bad inflation,” Higa, chairman & & CEO at Higa Industries, who is understood for bringing the Domino’s Pizza franchise to Japan, informed CNBC’s “Squawk Box Asia” on Friday.
The core customer cost index in Tokyo, which leaves out fresh food and energy, increased 1.9% in May compared to the previous year, federal government information revealed Friday.
While that figure is simply shy of the Bank of Japan’s ever evasive inflation target, the increase in expenses has actually been mostly due to food and energy rates. Excluding fresh food and energy rates, the customer cost index in Tokyo increased simply 0.9% year-on-year in May.
When the Bank of Japan revealed its 2% inflation target, it was taking a look at demand-pull inflation where the increase in incomes would develop a “virtuous cycle” of customer costs that even more presses rates and wages up, Higa discussed.
When you speak about inflation, it’s sort of like cholesterol– there’s excellent cholesterol and bad cholesterol– what we’re experiencing now in Japan is bad inflation.
Ernie Higa
Chairman & & CEO, Higa Industries
But today, the nation is dealing with a cost-push inflation– where rates are increasing while incomes are not following, he included. “As a retailer you’re really squeezed because all of your costs have gone up but you’re not able to really pass on that cost … to the consumer.”
To be clear, Japan is not the only significant economy dealing with cost pressures. Other nations like the U.S. and UK are presently dealing with probably more extreme expense of living issues.
The distinction, nevertheless, is that the Bank of Japan continues to embrace an ultra-dovish financial policy position– keeping rates of interest fairly low, at a time when peers at the U.S. Federal Reserve and Bank of England have actually been treking rates to eliminate inflation.
The divergence in policy outlook has actually added to a sharp weakening in the Japanese yen up until now this year, with the currency at one point damaging past the 130 deal with versus the greenback.
The yen has actually considering that reinforced from those levels, last trading at near 127 per dollar since Friday afternoon inAsia But that’s still a plain contrast to levels around 114 seen versus the greenback previously this year.
“The yen exchange is very important because Japan imports 60% of its food, not to mention 99% of its energy, and so this is causing a huge issue,” Higa stated. The Japanese currency’s sharp weakening versus the dollar is leading to an “extreme cost,” he included.
“If you import food, you can’t even fix your cost, much less then how do you figure out … your selling price,” he stated.
