Japan inflation slows in August, rice price surges ease

A farmer checks harvested rice grain in a paddy field in Tambasasayama, Hyogo Prefecture, Japan, on Wednesday, Aug. 28, 2024. Typhoon Shanshan has been churning toward Japan at a slow pace this week, leading to long periods of rain and wind across impacted areas, the weather agency said.

Inflation in Japan slowed to 2.7 per cent in August due partly to government energy subsidies, official data showed Friday, with the cost of rice easing following a huge price spike.

Inflation continues to be driven by rice prices, which increased by 68.8 per cent year-on-year in August after surges of around 100 per cent in June and 90.7 per cent in July.

Voters angry about rising rice costs have deserted the long-dominant ruling Liberal Democratic Party, and this month an under-pressure Prime Minister Shigeru Ishiba announced he would step down after his coalition lost its majority in both chambers.

Rice prices have skyrocketed because of supply problems linked to a very hot summer in 2023 and panic-buying after a “megaquake” warning last year, amongst other factors.

The core inflation reading from the internal affairs ministry, which excludes volatile fresh food prices, was in line with market expectations, and was down on the 3.1 per cent in July.

Abhijit Surya of Capital Economics said the main factor behind the fall in inflation was “a deepening of energy price deflation... due to the resumption of electricity and gas subsidies”.

But Taro Kimura, an analyst with Bloomberg Economics, said that a pullback in inflation “won’t change the big picture”.

“Consumer prices will remain warm enough to keep the Bank of Japan on track to pare stimulus, likely as soon as October,” he added.

Ishiba appointed a new farm minister and his government has released emergency stocks in an effort to bring prices down.

Last month Japan announced a change in its decades-old policy of encouraging farmers to grow crops other than rice.

U.S. President Donald Trump also wants Japan to import more American rice.

Export woes

Last month, data showed that Japan’s economy grew at an annualized pace of 1.0 per cent in the second quarter.

The reading suggested the economy was suffering less than feared from U.S. tariffs.

But other data released this week showed exports to the United States plunged nearly 14 per cent in August, with cars down 28.4 per cent.

The auto industry, which accounts for about a third of Japan’s exports to the United States, has been suffering under a 27.5 per cent levy.

However, on Tuesday, lower U.S. tariffs on Japanese autos kicked in as Washington implemented a recent trade pact between the two countries.

Vehicles will now face a 15 per cent toll, the same as many other goods.

While the implementation of the trade deal marked a win for Japan, the levies will continue to cause huge pain for the nation’s industries and Japanese business lobbies are hoping Tokyo will push on with fresh negotiations.

Japan’s automobile industry, which includes major firms such as Toyota and Honda, accounts for around eight per cent of the country’s jobs.