Japan's prices climb by most in two years ahead of election

Japan's key consumer inflation measure accelerated to a fresh two-year high as Prime Minister Shigeru Ishiba gears up for a summer election and the Bank of Japan mulls the country's price trajectory.
Consumer prices excluding fresh food quickened for a third month to 3.7% from a year earlier in May, according to an internal affairs ministry's release Friday. That's the fastest pace since January 2023 and above a 3.6% median estimate of surveyed economists.
Food inflation was again a major driver with the price of rice, the nation's staple food, jumping 102% from a year earlier. Service prices — a metric closely watched by the BOJ — rose 1.4% from a year earlier, slightly more than 1.3% in April.
The report comes as Ishiba's minority government and opposition parties debate how to reduce the pain of rising living costs, which contributed to the ruling party's biggest election setback since 2009 last fall.
Elevated price growth has also supported the Bank of Japan's posture for a rate hike as it awaits clarity on U.S. tariff measures and their economic impact. Japan's inflation has been running at the fastest pace among Group of Seven nations of late, and has stayed at or above the BOJ's 2% target for more than three years.
With an Upper House election expected to be held on July 20, Ishiba has pledged cash handouts to households, while opposition parties are calling for a first-ever cut to Japan's sales tax. To quell public discontent from soaring rice prices, the government has taken a host of measures to bring down the cost of the grain, helping prop up its popularity from a record low in a local media poll.

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

The Mainichi

6 hours ago

• The Mainichi

Japan PM to visit Netherlands from Tuesday for NATO summit

TOKYO (Kyodo) -- Prime Minister Shigeru Ishiba will be in the Netherlands for three days from Tuesday to attend a NATO summit, the government said Friday, as Japan aims to deepen its partnership with the military alliance. It will be the fourth straight year that a sitting Japanese prime minister has participated in a NATO summit. Japan is not a NATO member but is one of the alliance's Indo-Pacific partners. Ishiba also plans to hold bilateral talks with leaders of NATO members and those of its partners while in the Hague for the summit, Chief Cabinet Secretary Yoshimasa Hayashi said. U.S. President Donald Trump is among the expected attendees at the two-day summit from Tuesday. "Given the severe security environment we face, and based on the shared view that the security of the Euro-Atlantic and that of the Indo-Pacific are inseparable, Japan, along with other partners from the region, will discuss how we can cooperate with NATO in concrete terms," Hayashi said. At a meeting in Tokyo in April, Ishiba and NATO Secretary General Mark Rutte underlined the need to strengthen the Japan-NATO partnership amid security threats from Russia and China and agreed to push for defense industry cooperation.

Japan Times

6 hours ago

• Japan Times

Japan surprises with plan for bigger cut to superlong bond issuance

Japan is planning to cut the issuance of superlong bonds this year by more than earlier reported as it tries to restore calm to a market spooked by recent record highs in yields. The Finance Ministry proposed reducing the issuance of 20-, 30- and 40-year bonds by a total of ¥3.2 trillion ($22 billion) through the end of March 2026, according to a plan presented by the ministry during a meeting with primary dealers on Friday. The latest plan from the ministry showed a reduction to 20-year bond issuance that is twice the size suggested in draft documents, underscoring the level of concern among policymakers over rising borrowing costs. A poorly received auction of 20-year bonds by Japan last month rippled through global markets that are on edge over the risks posed by rising government debt levels. To compensate for the cuts in superlongs, the ministry is considering boosting the issuance of shorter-term debt, particularly six-month U.S. Treasury bills, the plan showed. The extra reduction for the 20-year bond issuance is "positive for the bond market,' said Mari Iwashita, executive rates strategist at Nomura Securities. "Still, whether the decline in liquidity and high volatility in superlong bonds will improve will depend on if there is solid demand in the upcoming 20- and 30-year bond auctions.' The yen curve flattened, led by a drop in long-end rates after the release of the updated plan. The planned revision to the ministry's bond issuance plan this year is the second move by policymakers this week to respond to an imbalance between supply and demand that has emerged in Japan's bond market. Earlier this week, the Bank of Japan said it would slow down its withdrawal from the market from next year in a move aimed at ensuring stability. The BOJ still has a massive footprint in Japan's bond market, with ownership of around half the nation's outstanding central government debt and would still be buying around ¥2.1 trillion of bonds per month in early 2027 under its new plan. Still, the void created by the smaller BOJ purchases is ruffling bond market dynamics as it hasn't been filled by renewed buying from private-sector banks and life insurers. That gap has fueled much of the choppy downward pressure on bond prices and pushed up yields. The problems are particularly acute in the superlong end of the market due partly to separate changes to regulations that have limited the appeal of those bonds for banks while reducing the need for life insurers to buy them. Growing concerns over Japan's fiscal trajectory and expanding deficits globally including in the U.S. are also feeding into reluctance to pick up debt of 20 years or more. "The ministry publicized its revised plan sooner than anticipated to ward off the risk of a failed 20-year bond auction on June 24 and to avert the market volatility seen in May,' said Shoki Omori, chief strategist at Mizuho Securities. "In light of these announcements, superlong-term auctions are poised to regain a measure of stability.' Under the latest plan, total issuance of 20-year bonds will decrease by ¥1.8 trillion to ¥10.2 trillion over the fiscal year. Meanwhile, the supply of 30- and 40-year bonds is expected to be reduced by ¥900 billion and ¥500 billion, respectively. The ministry is also planning to cut offerings in liquidity-enhancing auctions for 15.5- to 39-year maturities by ¥100 billion per auction. A Finance Ministry official briefing reporters Friday said that the plan will likely become officially approved on Monday or Tuesday. He added that the last time the bond issuance plan was changed during the fiscal year for a reason unrelated to budgets was in 2009. On buybacks, the official said that some market participants had asked for purchases of superlong bonds while others said buybacks would hurt the autonomy of the market. The ministry isn't working on implementing buybacks for now, and it's not something that can be implemented soon. Even if the planned adjustments go ahead, the Finance Ministry will still face the challenge of finding alternative investors to absorb the slack as the central bank continues its tapering. Japan remains heavily reliant on bond issuance to finance spending. Japan's projected debt-to-gross domestic product ratio of 232.7% this year is still the highest among developed economies, feeding into concerns about the nation's fiscal stability. About a quarter of the initial budget for fiscal 2025 was allocated to debt-servicing costs alone, underscoring the country's vulnerability to rising yields. The concerns have been fanned by policy measures floated by political parties ahead of a national election in July. Parties are preparing to unveil costly proposals aimed at securing voter support. The ruling Liberal Democratic Party is planning yet another round of cash handouts to households. The Democratic Party for the People, a key opposition force, has called for cutting the national sales tax to 5% across the board, a more expensive choice, with additional bond issuance floated as a possible funding source. Against this backdrop, investors are in need of reassurance that the balance of supply and demand in the JGB market will be restored without yields rocketing.

Japan Times

7 hours ago

• Japan Times

GCAP industry partners launch joint venture for trilateral fighter project

Japan's plans to develop a next-generation fighter jet alongside Britain and Italy have taken a significant step forward, with the three core companies involved in the Global Combat Air Program (GCAP) launching a joint venture on Friday that will be in charge of delivering the aircraft. Named Edgewing , the new firm — which brings together Britain's BAE Systems, Italy's Leonardo and the Japan Aircraft Industrial Enhancement Co. (JAIEC) — will be responsible for the fighter's design and development and will remain the design authority for the life of the product, which is expected to be in service beyond 2070. JAIEC is a joint venture launched last July between the Society of Japanese Aerospace Companies and Mitsubishi Heavy Industries. Edgewing will be headquartered in the English town of Reading to ensure maximum alignment and collaboration with the GCAP International Government Organization (GIGO) set up last year at the same location to manage the multibillion-dollar project, but will also feature joint teams working in each of the partner nations. Each of the three core firms hold an equal 33.3% shareholding in Edgewing. The future sixth-generation aircraft, which marks the first time that Japan is cooperating with countries other than the United States to meet a major defense requirement, is intended to replace aging Air Self-Defense Force F-2 jets, as well as British and Italian Eurofighters, with the first units expected to enter service by 2035. The twin-engine fighter, which is also intended for export, is set to function as a flying command center capable of controlling and coordinating other — likely autonomous — assets, with the aircraft viewed as 'the centerpiece of a wider combat air system that will function across multiple domains.' 'The newly formed entity will play a central role in achieving the program's ambitious goals — including the in-service date of 2035 — while setting a new benchmark for trilateral industrial partnership across Europe and Asia,' the new company said in a statement. Italian Marco Zoff, formerly managing director of Leonardo's aircraft division, will be Edgewing's first CEO. 'By uniting the strengths of our talented people in the U.K., Italy and Japan, we are not only delivering the next-generation combat air system, we aim to set a new global standard for partnership, innovation and trust,' Zoff said. Speaking to The Japan Times at the DSEI Japan defense exhibition in May, BAE Systems' Herman Claesen, who will be first chair of Edgewing's board of directors, said the joint venture expects to receive its first contract from the GIGO by the end of the year. It will then subcontract the manufacturing and final assembly of the aircraft to the three core companies and then the wider supply chain. With the aircraft's conceptual design stage complete, the project is now set to advance to the detailed design and development phases. Building fighter jets involves a complex supply chain, meaning that GCAP will comprise more than one industry construct. This means that several other companies are also set to come together as lead subsystem integrators in three broad domains. One such industrial construct — in charge of propulsion systems — will comprise Rolls-Royce, IHI and Avio Aero, while another featuring MBDA U.K., MBDA Italy and Mitsubishi Electric will join forces to develop the aircraft's future weapon systems. Last but not least, Leonardo Electronics Italy, Leonardo U.K., Mitsubishi Electric and ELT Group will work together on developing integrated communications as well as a fully integrated sensing and nonkinetic effects capability that will help provide a more comprehensive situational awareness picture in order to maximize survivability. GCAP is being designed to 'maximize and grow' the industrial capability in each of the nations, with design, development, manufacturing and production elements set to be evenly distributed. At the same time the partners hope that through 'effective knowledge and technology transfer' the project will also help grow and build resilient supply chains and deliver sovereign combat air capability in each nation for generations to come. At the same time, the three partner governments are considering whether to invite other countries to join, particularly Saudi Arabia. Riyadh has shown an interest in the multinational program, but there are also unconfirmed reports that Australia, Canada and India might be looking to participate. No official information has emerged on future partnership plans, including which additional countries are being formally considered or what their exact role or contribution to GCAP would be.