In May, Japan witnessed an unprecedented surge in rice prices, with a year-over-year increase of 101.7%, the highest spike in more than 50 years. This followed similar surges in March (92.1%) and April (98.4%), bringing rice to the forefront of Japan’s inflationary pressures. As rice is a staple food in Japan, such a steep price increase has drawn widespread attention and concern, prompting the government to release emergency stockpiles to ease the burden on consumers.
Rice Price Surge Drives Core Inflation, Threatens Stability of Japan’s Economic Recovery
This sharp rise in rice prices coincides with a broader inflationary trend in Japan. Core inflation — which excludes fresh food prices — rose to 3.7% in May, surpassing both April’s 3.5% and the 3.6% expected by economists. Although headline inflation slightly dipped to 3.5% in May from 3.6% in April, it still marked the 38th consecutive month of inflation exceeding the Bank of Japan’s (BOJ) 2% target. Meanwhile, “core-core” inflation, which also excludes energy prices, increased to 3.3% from 3%.
Japan’s Rice Price Surge Hits 50-Year High, Driving Inflation and Testing Recovery PlansAccording to Marcella Chow of JP Morgan Asset Management, rice alone contributes around 50% to Japan’s core inflation. This emphasizes how deeply the staple’s price fluctuations affect the overall economy. Chow suggested that if government efforts to lower rice prices succeed and extend to products like processed rice foods and restaurant meals, this could stimulate household consumption and support economic growth in the real economy.
Inflation Outlook Uncertain Amid Global Tensions, Slowing Growth, and Steady Interest Rates
While some analysts, like Kei Okamura of Neuberger Berman, were not surprised by the inflation data, they predict that food-driven inflation may ease in the coming months. However, external factors such as geopolitical tensions in the Middle East could still influence energy prices, adding unpredictability to Japan’s inflation outlook. This nuanced situation requires careful monitoring of both domestic food trends and global energy markets.
Despite the inflationary pressures, the BOJ maintained its interest rate at 0.5% during its recent policy meeting. Governor Kazuo Ueda indicated that rate hikes will proceed only when there is more evidence that inflation will sustainably approach 2%. The central bank anticipates that inflation may ease going forward due to slowing economic activity. In fact, Japan’s GDP contracted by 0.2% in the March quarter, marking the first economic shrinkage in a year, largely due to falling exports.
