Japan encounters massive food price hikes: inflationary dilemma hit by multiple factors

Recently, Japanese companies have been busy with one thing: raising prices.

"Nikkei Asia" reported that the prices of 164 products including the Prelics brand shipped by Japanese food giant Glico in October increased by 3% to 15%; Yakult raised the prices of 12 products; fried bean snack Miino increased in price; infant formula Puremilk increased by 15% per can; tobacco sticks produced by Japan Tobacco increased in price by 40 yen...

A survey by the Japanese Empire Database shows that in October, a total of 3,153 types of food increased in price in the Japanese market, adding up to nearly 5,000 types of food that increased in price in September (approximately three times the same period last year). This wave of the largest price increase in the year is hitting Japanese dining tables.

Why is the entire Japan trapped in the word "rising"?

To put it simply, Japan is facing multiple attacks such as global geostorms, domestic cost difficulties and the depreciation of the yen.

Let’s look at geography first. Japan relies on the Middle East for more than 90% of its crude oil imports. The conflict between the United States and Iran has pushed up global oil prices, and Japan has been the hardest hit among major economies.

Bank of Japan data shows that in July, the unit price of crude oil imports in yen soared by about 78% year-on-year.

Oil is the food of industry and the blood of logistics. As oil prices rise, the costs of Japanese companies soar across the board. For example, when Xueyinhui milk powder was adjusted in price, the reason given was that packaging materials and logistics were expensive.

The depreciation of the yen has also further amplified the procurement burden. Since July, the exchange rate of the yen against the U.S. dollar has fallen below the 1:160 mark several times. The expenditures of many Japanese companies that rely heavily on imports have risen sharply. Cost transmission is intertwined, and prices are rolling towards the terminal like a snowball.

In fact, if you look at CPI alone, the price increase does not seem serious: Japan's core CPI (consumer price index) rose 1.7% year-on-year in August, narrowing from July.

But the market believes that this is just a "policy illusion."

Shinichiro Kobayashi, chief researcher at Mitsubishi UFJ Research & Consulting Co., said the slowdown in core CPI growth was mainly affected by the financial subsidies provided by the government for electricity and gas bills. After the subsidy ends, the transmission effect of energy price increases is expected to continue, and frequent natural disasters may also have a widespread impact on food and other fields.

Subsidies can provide emergency relief, but they cannot cure the root cause. The pressure on people's dining tables is not small at all. Under multiple shocks, the fire of Japan’s inflation is far from being burned out.

"Nikkei Asia" quoted data from the Japan Economic Research Center as saying that economists on average expect Japan's core inflation rate to be 2.52% from October to December this year and to reach 3.08% from January to March next year. The Bank of Japan also warned that there is a risk that the CPI will accelerate above 2% in the second half of fiscal year 2026.

The pain caused by inflation to the Japanese people is deepening. The Imperial Japan Database predicts that based on current trends, about 20,000 types of food will increase in price throughout this year in Japan.

"The lives of Japan's elderly and those with unstable employment will become more difficult due to rising prices, and the gap between rich and poor will further widen." Japanese economist Hideo Kumano said that at the same time, due to rising prices, the public may lose trust in government policies, leading to increased political instability.

To curb inflation, the Bank of Japan raised interest rates by 25 basis points this month to 1.25%, the highest level in 31 years. The reason for raising interest rates clearly mentioned "suppressing the rise in oil prices and the depreciation of the yen."

But raising interest rates is a bitter pill. Japan's economy is already weak, and raising interest rates may further dampen consumption and investment. Especially if the conflict between the United States and Iran becomes protracted, Japan may raise interest rates more than once this year, and economic growth may become even more difficult.

The Japan Research Institute warned that if the Strait of Hormuz is blocked for a long time, Japan's annual GDP may drop by 3%.

From corporate announcements to supermarket shelves, from energy lifeline to monetary policy, Japan is caught in the dilemma of inflation and growth. Subsidies can suppress it for a while, and raising interest rates can cure one end of the problem, but geopolitical risks, capacity bottlenecks, and currency weakness are intertwined to form a web that is difficult to break free from.

The Japanese dining table crisis has no end in sight in the short term.