Japan’s recovery from the economic blowback of Covid-19 is reportedly being threatened by rising costs of raw materials, fueled by the ongoing war in Ukraine and a weak yen, as per a recent survey by the central bank of Japan.

In the Tankan survey by the Bank of Japan, many are finding price hiking difficult despite growing evidence of enterprises passing over higher grain, energy, and commodity prices to consumers.

Corporate executives’ sense of alarm has heightened with the yen rapidly depreciating and reaching a six-year low, further complicating their efforts in ensuring recovery from the pandemic.

Economists believe companies are being cautious amidst the uncertainty of the war in Ukraine, coupled with a weak yen due to the Bank of Japan’s monetary easing, and the changing pandemic situation; both local and overseas, especially in China, its key trading partner.

Even though the country registered improvements in six consecutive quarters, recovery confidence has stalled among manufacturers as well as nonmanufacturers in the March Tankan survey.

Businesses that were surveyed are expecting a 1.8% rise in prices next year, the sharpest pace recorded.

The Tankan survey also reported that the average rate of dollar-yen for the current fiscal year is assumed at 111.93 yen, which reflects the surveyed firms’ views that the recent weakness in yen will not last long.

The central bank has shown its resolve in defending the capping on long-term interest rates via rounds of unlimited bond-buying at fixed rates, indicating that powerful monetary easing and weakness in the yen will continue.

A weak yen signifies high import costs for the resource-scare country while boosting exporter’s overseas profits when repatriated.

To alleviate consumers’ pain from high prices, Prime Minister Fumio Kishida ordered the creation of a new economic package by the end of April, ahead of an important election in summer, where an crucial aspect will be incentivizing businesses to withhold price hikes and also extend financial support to small and midsized firms. 

The government has also given subsidies to oil wholesalers to bring down retail prices for consumers.

Source credit: https://japantoday.com/category/business/focus-high-raw-material-costs-plus-weak-yen-threaten-recovery-from-covid