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MNI INSIGHT: BOJ Concerned Energy Costs Could Dampen Growth

MNI (Tokyo)

Higher costs for imported fuels like gas and oil are squeezing spending plans by households and companies.

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A weaker yen has drawn more concern from the Bank of Japan as sustained high energy import costs could lower corporate profits and cut household spending, blunting the expected economic recovery, MNI understands.

BOJ officials also note a rising U.S. Treasury 10-year bond yield adds further pressure on the yen against the dollar that can in turn affect Japan's economy and financial markets.

The risk is that the higher overall import costs that impact the currency are not passed across at the retail level and that exports such as automobiles face continued parts shortages even as input costs rise.

Fewer automobiles sold overseas would ripple through Japanese manufacturer plans on capital investment, potentially undermining an expected virtuous cycle from profits to spending, the BOJ warns.

The dollar rose above JPY 113 this week, the first time since December 2018 at that level.


Benchmark Brent crude oil has held above USD80.00 a barrel since an OPEC meeting earlier this month set a bullish tone on production. The U.S. benchmark, West Texas Intermediate, briefly rose above USD82.00 this week for the highest level in seven years.


Japan's nationwide gasoline prices are now the highest in three years at JPY160 per liter. BOJ officials have warned the higher transport fuel costs directly affect spending plans for many firms and households.

Japanese policymakers usually warn of sharp yen rises and the impact on economic activity and exports. But the BOJ now faces the impact of a weaker yen, which boosts overall import costs.

Japan is counting on an economic rebound from the pandemic as part of its policy efforts to reach sustained 2% inflation over the medium to longer term. Energy costs are excluded from that target because of volatility, see: MNI INSIGHT: Tankan Supports BOJ Econ Views; High Costs Eyed.

The BOJ next reviews policy at the end of October, along with its economic forecasts, with September Tokyo core CPI reflecting higher energy costs.


Major manufacturers are not increasing exports as they struggle with supply chain disruptions and semiconductor shortages.

Japan's vaccination rate has surged to nearly 65%, according to data from Johns Hopkins University. But supplies for automobile makers from Southeast Asia remain patchy because of uneven vaccine rollouts and related lockdowns, though Thailand and Malaysia have recently eased some restrictions.

And data this week pointed to recovery on prices for companies. Japan's September corporate goods price index rose 6.3% y/y, the highest level since September 2008 when it rose 6.9% y/y.

But prices for final goods rose only 2.9% y/y in September vs. +2.8% in August, showing that the high costs haven't sufficiently transferred to retail prices and corporate profits continue to be squeezed.