As debate continues over whether yen depreciation is the main culprit behind rising prices, the Bank of Japan is stepping up moves toward additional rate hikes. However, yen appreciation cannot be taken for granted, and there is a gap between people’s perception of prices and movements in the indicators. This article examines the current relationship between prices and exchange rates.
While reports indicate that the Bank of Japan is taking a firmer stance toward additional rate hikes, the article also presents the argument that rates should be raised to curb the rise in import prices caused by yen depreciation. The headline consumer price inflation rate in August 2026 was 1.9%, below 2%. Referring to the previous installment, the article is presented as part of a series examining the nature of prices.
Food prices are said to have risen by approximately 30% over the roughly six years since 2020. It is only natural that people feel the impact of higher prices, but a high price level and a high rate of increase are separate issues. The focus is on the extent to which yen depreciation is actually pushing up prices and whether yen appreciation would follow if the Bank of Japan raised interest rates.
No definitive conclusion is given on the relationship between yen depreciation and prices, and a policy of not asserting a causal link between Bank of Japan rate hikes and yen appreciation is presented. There have also been reports of moves to approve a government plan to cut the consumption tax on food from 8% to 1%.