Rising Food Prices in Japan

By Leika Kihara

TOKYO (Reuters) – Japanese households will face escalating living costs as a private think tank survey reveals a five-fold increase in food items expected to see price hikes in July.

This finding emphasizes the growing inflationary pressure in Japan’s economy, which was once deflation-prone. Policymakers are considering the need for further interest rate increases as a reflection of sustained price rises.

Survey Highlights

A survey involving 195 major food producers indicated that they anticipate price increases for 2,105 items in July, up fivefold from last year, averaging 15%, according to Teikoku Databank.

Factors driving price increases include rising raw material costs, utility bills, transportation, and labor expenses.

Notable Price Hikes

Prices will rise for various items, including rice products, chocolate, chewing gum, potato chips, and pasta sauce. Key announcements include:
– Ajinomoto AGF: Coffee prices up by 25-55%.
– Meiji: Cheese and milk prices up by 11%.

A potential resurgence in crude oil prices amid escalating Middle East conflicts could replicate last year’s price hike wave, which affected 25,768 food and beverage items.

BOJ and Inflation Trends

Following a rate increase to 0.5% in January, the Bank of Japan (BOJ) has maintained steady borrowing costs, even as core consumer inflation reached a two-year high of 3.7% in May, exceeding its 2% target.

BOJ Governor Kazuo Ueda emphasized a cautious approach to further rate increases until inflation is backed by solid consumer spending and higher wages, rather than solely rising costs.

Despite the central bank’s view that rising food and fuel prices are temporary, persistent cost-of-living increases may shift public expectations about future prices.

Consumer Sentiment

A government poll showed that 93.6% of consumers expect prices to rise over the next year, an increase from 93.2% in April, with 55.5% of respondents predicting inflation rates of 5% or higher.

BOJ’s Challenges

The BOJ’s upcoming quarterly ‘tankan’ survey will shed light on the balancing act between rising inflationary pressures and the fragile state of Japan’s economy amid uncertainties created by U.S. tariffs. Analysts expect a decline in business sentiment among large manufacturers in the June survey from +12 to +10, while capital expenditure plans are anticipated to rise by 10% in fiscal 2025 compared to the previous year.