Japan is finally experiencing inflation, but it may not be time to celebrate

Japan’s core consumer prices may be close to the central bank’s 2% target, but veteran businessman Ernie Higa says the time is not yet ripe.

“When you talk about inflation, it’s kind of cholesterol – there’s good cholesterol and bad cholesterol – what we’re seeing right now in Japan is bad inflation,” Higa, chairman and CEO of Higa Industries, known for bringing Domino’s Pizza franchise to Japan, told CNN. Squawk Box Asia” on CNBC on Friday.

Government data on Friday showed that the core consumer price index in Tokyo, which excludes fresh food and energy, rose 1.9% in May from a year earlier.

While that number is just shy of the Bank of Japan’s elusive inflation target, the rise in costs was largely due to food and energy prices. Excluding fresh food and energy prices, the CPI in Tokyo rose only 0.9% year-over-year in May.

Higa explained that when the BoJ announced its 2% inflation target, it was looking at demand-pull inflation as higher wages would create a “benign cycle” of consumer spending that pushes prices and salaries higher.

When you talk about inflation, it’s kind of cholesterol – there’s good cholesterol and bad cholesterol – what we’re seeing right now in Japan is bad inflation.

Ernie Hega

Chairman and CEO of Higa Industries

But right now the country is facing cost-driven inflation – where prices rise while wages don’t track. “As a retailer, you’re really locked in because all of your costs have gone up but you can’t really pass on that cost… to the consumer.”

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To be clear, Japan isn’t the only major economy facing price pressures. else Countries like the United States. And United kingdom They are currently facing arguably more serious living problems.

The difference, however, is that the Bank of Japan continues to adopt an extremely pessimistic monetary policy stance – keeping interest rates relatively low, at a time when peers at the US Federal Reserve and the Bank of England have been raising rates to fight inflation.

The difference in policy expectations contributed to a sharp weakening of Japanese Yen So far this year, with Weakness of the currency at one point after the handle 130 against the dollar.

Since then, the yen has consolidated from those levels, most recently trading at nearly 127 per dollar as of Friday afternoon in Asia. But this still stands in stark contrast to the levels around 114 seen against the dollar earlier this year.

“The yen exchange is very important because Japan imports 60% of its food, not to mention 99% of its energy, and this is causing a huge problem,” Higa said. He added that the sharp weakness of the Japanese currency against the dollar had led to “exorbitant costs.”

“If you’re importing food, you can’t even determine the cost, let alone how to determine the selling price,” he said.

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