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BoJ sees moderate impact from global inflation

A flag waves in front of Bank of Japan’s headquarters in Tokyo. — Reuters
A flag waves in front of Bank of Japan’s headquarters in Tokyo. — Reuters

TOKYO: Rising global commodity prices are likely to push up Japan’s consumer inflation, though only for a temporary period, and to a smaller extent than in Western economies, the Bank of Japan said.

As the inflation is driven by robust overseas demand, Japan’s corporate profits will see the hit from higher import costs more than offset by the benefits of solid exports, the central bank said.

“The underlying increase in commodity prices will worsen Japan’s terms of trade for the time being,” the BOJ said in a report. “But that will be outweighed by positives, such as rising exports and capital expenditure.” Japan’s wholesale prices rose 5.1 per cent in May from a year earlier, their fastest pace since 2008, fuelled by rising commodity costs.

But core consumer prices, the BOJ’s preferred measure of inflation, rose just 0.1 per cent in May as weak domestic demand kept firms from passing on the higher costs.

Even when demand is strong, Japanese firms tend to be slower to pass on costs than Western counterparts, which will keep any rise in consumer inflation moderate. “Looking at past experiences, any rise in consumer inflation driven solely by raw material costs will not broaden, and end up being transitory,” the bank said. — Reuters

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