[12]As we have been warning for a while now, Japan wanted inflation and is certainly getting it, just in all the wrong places.
While Abe has been desperate to transfer the collapse in the yen and the (transitory) surge in the Nikkei to the all important increase in wages, and the much sought-after wealth effect, the reality is that corporate input costs are rising far faster than revenues, and wages will be the last thing profit and earnings-conscious companies raise.
As for the Japanese consumer, trained by 30 years of deflation, any profits in the stock market will be promptly converted to cold hard cash and bank deposits which represents that vast majority of Japanese financial assets [13], which means a double whammy for companies who will also see a drop in sales volumes, crushing margins even more as a result.
One company which could no longer tolerate soaring energy and food costs (both of which we described previously here [14]and here [15]), is McDonalds, and as the FT reports [16], the fast-food chain announced today that the price of its entry-level hamburger would increase by 20% from ¥100 to ¥120, while a cheeseburger would now cost ¥150 instead of ¥120.
This is the first price increase by McDonalds Japan, the largest corporate affiliate outside of the US which runs 3,300 local fast food restaurants, in five years.
And now the Japanese, those few who have been trading stocks, and the vast majority who have not, will learn that there is no such thing as a free lunch, and the recent market gains will promptly transform into a sudden and violent 20%+ drop in purchasing power which in turn will manifest itself into surging fury for two entire generations that have never seen rising prices anywhere outside of textbooks.
“If prices go up, I will try to use coupons more and think more carefully what to order,” said Satomi Chiba, a 42-year-old part-time helper at a nursery, who takes her family of four to McDonald’s “two or three” times a month.
But those are problems of the 99%, and as such can be ignored. For now, the world's attention appears transfixed by the sudden surge of "wealth" (sadly wealthy is never merely diluted purchasing power) of the 1%.
Tokyo’s financial district has begun to buzz once more. One visiting banker said it took him eight minutes this week to find a taxi in a street normally lined with idling cabs.
Unfortunately, by now the bulk of the stock market gains have come and gone. And now it is up to everyone else, to pay the price.
Attention is switching to evidence of inflationary pressures building in the broader economy. While the weaker yen has caused costs for fuel and other imports to rise, many companies have so far been reluctant to lift their final prices, for fear of losing market share.
Tokyo Shimbun, for example, raised the newsstand price for its morning newspaper from Y100 to Y110 this month – the first increase in 16 years – but left the price of a monthly subscription unchanged.
Something tells us the Japanese BLS is hardly as proficient at "hiding" soaring food and energy prices as the US version. Which means rising inflation will be directly correlated with public anger and inversely so with the popularity of the Abe cabinet, something we discussed previously when we observed that according to Asahi, the favorable rating of Abe has already started to drop precipitously, tumbling to 60% from 71 [17]%. The longer the Abenomics experiment drags on, the lower this number will be until finally it hits the same level it did when Abe was forced to resign in disgrace the last time around.
Only this time he won't be able to blame his failure on another bout of explosive diarrhea [18].