USD/JPY, Imports, PPI

The BOJ’s release of the PPI Index occurs Saturday on the 12th and the question will the BOJ disclose Japan’s most vital source of information Friday, the 11th.

The Import side of the Index was not only positive for all 2022 but Imports surpassed Exports by 5 X and 10 X on a Yen and Contract currency basis based on monthly and yearly changes. The massive adjustment lower from persistent highs began in November 2022 however Imports ran 2 X to Exports. Imports fairly normalized to Exports in February and March 2023 yet Imports remained higher.

Japan’s June 3.3% Inflation rate derived from Imported Inflation due to the high cost to imports and the many ancillary factors associated with high Inflation Rates. Inflation is a deeply lagging indicator but if the puzzle pieces are combined, Inflation rates are seen in advance.

The first component was USD/JPY skyrocketed from 114.00 to 146.00’s and rose alongside DXY. JPY/USD was cheaper but entailed a higher cost for Imports and enough to harm and surpass the export side. A fine line exists to the Exchange rate vs Imports and Exports as all must balance to contain and normalize Inflation.

WTI as a vital Import to Japan rose from 70.00’s to 130.00’s for 2022, Copper and Steel rose for all 2022, Soybeans as an insatiable consumer good for Japan and Asians, rose for all 2022. Semi Conductor prices rose for all 2022. Electronics, Metals, Textiles and Lumber rose for all 2022.

Producer Prices for all 2022 were extraordinarily high and peaked in December 2022 as the cost of goods to manufacture for exports suffered substantially. Imports for December 2022 ran 2 X to Producer Prices on a yearly basis and 5 X to imports from May to October 2022.

May and June 2023 began a fairly normalized relationship between Producer Prices and Imports to Exports. On a balanced relationship as is the current alignment, the BOJ correctly forecasts a lower Inflation rate for all 2023.

USD/JPY at 141.00’s is fairly in line with BOJ estimates. A lower Inflation rate and lower import prices would see the Export side rise substantially above Imports.

Powell and the Fed offered nations higher prices, interest rate rises and Imported Inflation as all nations suffered higher Interest and Inflation Rates.

The question to BOJ interest rate changes occurs only if Inflation remains persistently high and this is not seen. From Shinici speech August 2nd, the YCC bands expanded in December 2022 due to high Inflation rates and higher rates expected. YCC band expansion derived to contain Japan’s Inflation rates.

Brian Twomey

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