JPY: Food prices continue to drive inflation – Commerzbank

Rice accounts for just 0.62% of the Japanese consumer price index, Commerzbank's FX analyst Volkmar Baur notes.

Inflation in Japan stands at 3.5% in May

"However, given that rice prices have risen by over 100% in the past 12 months, this has had a noticeable impact on overall inflation. Overall, inflation in Japan stood at 3.5% in May. Excluding rice, inflation would be below 3%. While inflation remains high, excluding food and energy shows that the inflation rate in May remained stable at 1.6%, within the Bank of Japan's target range."

"However, the BoJ only excludes fresh food and energy to calculate its core rate. Because other food prices are also rising significantly, this rate remains at 3.3%, which is above the BoJ's target. In my opinion, the BoJ should not respond to high food prices, particularly the rise in rice prices, by raising interest rates."

"The solution is much more obvious. While rice prices in Japan have more than doubled recently due to the poor 2023 harvest, export prices for Thai rice have fallen by over 36% in the past 12 months. Therefore, it would be much easier to lift the high import restrictions on rice to lower prices, rather than burdening the economy with higher interest rates."