If the past three months have been any indication of what Japan has to look forward to from Abenomics, we have a feeling his tenure will be as short, if not shorter, than all of his recent (and numerous, among which he, himself) predecessors. Because while the stock market may have risen in lock step with the plunge in the Yen, what has also soared are costs. And while a very select few benefit from the transitory surge in the Nikkei, the rising costs, i.e., inflation, hit everyone equally.
Presenting this visually: the USDJPY and Nikkei correlation, which is 1:1 - this is the good news (for some)
Again, "for some":
And the flip side, as shown before, soaring energy costs - this is the bad news (for all):
As all of this happens, Japanese exports - the sole purported reason for this whole reflationary experiment, as the only way the economy improves is if Japan exports soar and the country returns to a net trade surplus status, just hit a record deficit as of a few days ago:
But while the "no free lunch" reality has until now mostly been felt by those who need energy, as shown in "You Wanted Inflation, You Got It: Japanese Gasoline Price Rises To Eight Month High" the inflationary impact on Chinese imports is about to hit everyone like a sledgehammer right where it hurts the most: in the stomach, as the inevitable has finally happened, and the agriculture ministry announced that wholesale wheat prices are set to rise by a near-record 9.7% in April, which will shortly thereafter send regular food prices soaring.
The agriculture ministry said Wednesday it will raise wholesale prices for five imported wheat varieties by an average of 9.7 percent to 54,990 yen per ton in April, the second rise since October, due to higher international market prices and the yen's depreciation.
The yen's decline triggered by the policy of the government of Prime Minister Shinzo Abe formed in December has pushed up prices 2 percent, and new prices to become effective in October might get even higher if the Japanese currency remains weak, the Ministry of Agriculture, Forestry and Fisheries said.
This is only the second highest increase in wheat prices in history, with the only greater one taking place during the great inflation scare of early 2011, when even China got its brush with the "spring" movement that toppled all North African dictators.
The rate of increase in April is the second steepest after the 18 percent notched in April 2011.
What food will be impacted? Pretty much anything with wheat in it. And anyone hoping that the deep-pockted government would sibsidize producers (and thus force the entrance into a trade war), will be disappointed: the prices will all be passed on to the consumer.
Of five main wheat varieties, two for use in udon noodles and confection will become 14.2 percent more expensive. The prices for the remaining three varieties used in bread and Chinese noodles will jump 7.5 percent, making it likely that price hikes will be passed onto consumers.
Following the ministry's announcement, Nippon Flour Mills Co. said it will consider raising its charges. Other milling firms that produce wheat for industrial and retail use are also expected to follow suit.
The government buys all imported wheat, on which Japan relies for 90 percent of its consumption, and revises the prices twice a year -- in April and October.
And just like that Japan is about to learn that soaring stock prices always have a trade off, a lesson which even GETCO's S&P ramping algos will not be exempt from when the latest bout of soaring food inflation results in central banks scrambling to withdraw liquidity, just as they did in early 2011. The results will naturally be the same.
As for how long Abe's government will remain in power after energy and food inflation sweep through the net importing nation, that is anyone's guess.