Wednesday, March 13, 2013

You Wanted Inflation Japan? You Got It! Utility Prices to Rise Up to 20%

Like I wrote last year, this planned inflation by Shinzo Abe and the LDP is going to be the death of Japan's economy.  A few weeks ago, a spike in oil and gasoline prices was announced (You Wanted Inflation, You Got It: Japanese Gasoline Price Rises To Eight Month High) then about ten days ago a 9.75% increase in wheat prices was announced. Please refer to my satirical blog post entitled: Shinzo Abe Resigns as Japanese Prime Minister:

The headlines read, "Japanese Prime Minister Shinzo Abe Resigns!"

... Well, sorry to get your hopes up, but not yet he hasn't... But he will in a few months... Food prices are about to soar over 10% on many items! Shinzo Abe hasn't resigned yet, but let me state it here: Shinzo Abe will not last out 2013. I predict that his tenure could end as early as August 2013. Why?

They wanted inflation; they now have it. Idiots! Food prices in Japan are about to soar. Zero Hedge reports in Japan Food Prices Set To Soar As Government Hikes Wholesale Wheat Prices By 10%.

Well, of course it was all predictable. Really, I mean this isn't rocket science; it's third grade mathematics. I don't know what world these politicians are living in, but in the real world, two plus two equals four. Need I explain more? So, if math doesn't lie then when you devalue your currency by 20%, then your costs are going to go up by 20%... Especially in a country that imports nearly all of her energy needs (and just a few of her nuclear power plants running)!

A weakened yen would help exports, as I pointed out, IF the export business were robust. But it is not. And it's not wholly in the dumpster because of a high yen. Don't look now but the entire world in in recession and that, my friends, is probably the biggest reason the export business is tanking. 

For proof that the export business is near-death worldwide, please refer to Wikipedia and The Baltic Dry Index

The Baltic Dry Index (BDI) is a number issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides "an assessment of the price of moving the major raw materials by sea.

And....Now that you know what the stick used for measuring the export business is, here is a recent article about that definitive report concerning the health of the export business. From Investment Watch, this article from Dec. 12, 2012 entitled, Standstill: The Charts That Prove The Global Economy Is In Serious Trouble:

Amid growing concern that the global economy is teetering on the edge of a total collapse, governments in Europe, China and the United States continue to manipulate statistics in an effort to paint a picture of recovery and a return to normalcy.

But despite their best efforts to fabricate positive employment numbers, GDP growth, currency stability and stock market health, the stark reality is that the global economy is at a standstill, and has been since before the crash of 2008...

...In essence, the price of transporting goods collapsed – to its lowest levels ever. That old theory of supply and demand was the culprit. You see, when there is no money to buy goods, there is no demand for said goods. This puts pressure on transportation companies who make a living moving products from port to port around the world. But because no one was able to consume, there was no need to ship anything. This forced transportation companies to reduce their freight rates in an effort to stay competitive.

The clowns in the LDP think a weak yen will rescue Japan's faltering economy by making exports cheaper... Sounds good... That is, if there anyone to buy Japanese goods.

I fear that the weaker yen will be the last straw in breaking the Japanese Economy. Here's my reasoning why... 

China and Japan are in a row over islands. Boom! Down goes exports to Japan's biggest trading partner. Please refer to the NY Times article, "Japan Trade Suffers as China Ties Deteriorate":

"Shipments to China, which is Japan's biggest trading partner, tumbled 14.1 per cent as demand dropped for Japan-branded products..."

Also refer to Japanese Car Sales Plunge Amid China Rage.

Europe is in no condition to be big spenders on anything as Euro states are already in deep recession.

The USA isn't in good shape either as it is in recession too and Japanese cars aren't selling well due to Fukushima and other issues.

Gee? So what will a weak yen certainly buy for Japan? Answer: How about a 10% increase across the board on energy imports?

OK. I was wrong. It's more than 10%! I was in error. Sue me! 

Now, lucky reader, the other shoe has dropped: Japan has announced a 14% ~ 19% across the board increase in energy and utility prices. Please refer to: Market Watch: Japan's utilities to hike rates amid weak yen

TOKYO--Japanese utilities, forced to idle their nuclear power plants over the past two years and facing higher fuel costs due to a weak yen, are now looking to push through double-digit rate hikes for their commercial customers.

The action comes at a bad time for some Japanese companies that were hoping the fall in the yen and much-trumpeted efforts by the government to turn round the economy would help improve their prospects.

While the government has raised some concerns about the raising of power rates, the move seems inevitable given the prior deregulation of electricity prices. 

--Weak yen pushing up imported fuel costs for Japanese utilities
--Rate rises of 14%-19% expected to come into force
--Higher electricity prices likely to hit smaller corporations most severely

Some people will say, "But Mike, these increases are only for commercial customers!" Yeah, right. As if they won't pass the costs onto the consumer... Once again, I think that mathematics are pretty simple here. If they get hit with a 14% increase in costs, they will pass that onto the consumer. I'll also bet that a 14% increase in costs will cause them to increase the costs of the goods that they are trying to ship overseas thereby damaging exports.


Thank you Shinzo Abe and your planned inflation and 18% depreciation of the yen. I reckon we can expect more of the same. 

With things going this well with the yen at 95 to the dollar, imagine how great things will be when the yen hits 120 to the dollar!

Woo-hoo! A 40% across the board increase in energy and food prices! We'll be rich!

1 comment:

James said...

I believe when TEPCO already raised their rates for end-users, the commercial users argued for no raise in commercial rates, which TEPCO caved on at the time. So this is reality catching up with commercial users in the end. Eventually the piper must be paid.