The CPI of Japan consists of the items given in Chart 1. The items with the most weight in it are food, housing, transportation and fuel. Therefore, it is important to watch food and energy costs as well as housing prices in Japan.
|Chart 1: Items in CPI of Japan (2010)|
Second, we take a look at the Japanese housing market. The Japanese housing market has always been in a decline for the last 15 years, but now we see signs of stabilization. Housing prices are about to rise in the coming years. In the metropolitan areas for example, we have seen land prices go up at an annual rate of 11.5% in 2012.
Third, fuel and energy costs are going through the roof. With the Fukushima disaster, a part of the nuclear energy had to be diverted to fuel. In fact, LNG imports soared to 86.9 million tonnes. Added to this disaster, the yen weakened considerably in 2013 which led to rising fuel and energy costs. We can witness this in the rising LNG prices in Japan. These events are a very good example of why a weaker yen is not a good thing, instead it creates an environment where people's purchasing power declines. In this case the price of the imports of fuel are going up and this will add to the trade deficit of the country. The statistics bureau of Japan recently put out the latest numbers on the CPI. Fuel was contributing the most to the rising costs of living.
|Table 1: Consumer Prices: Change from the Previous Year in 2012|
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