The Bank of Japan reported that import prices in its July Corporate Goods Price Index rose 29.1% year on year in yen terms and 17.7% in contract-currency terms, resulting in an 11.4 percentage-point gap between the two series. This analysis examines what the gap means and how it relates to individual companies’ disclosures.
According to the Bank of Japan’s July Corporate Goods Price Index, import prices rose 29.1% year on year in yen terms and 17.7% in contract-currency terms. Month on month, they rose 1.3% in yen terms and 0.3% in contract-currency terms. The difference between the two figures was 11.4 percentage points, while the dollar-yen exchange rate moved 1.1% month on month in the direction of yen depreciation.
The author points out that the difference between the yen-based and contract-currency-based figures includes the effect of foreign-exchange conversion and therefore does not simply indicate an increase in companies’ costs. The index is a weighted average across multiple products, currencies and points in time, and should be considered separately from individual companies’ procurement costs, gross margins, foreign-exchange gains and losses, and inventory movements.
The analysis identifies six hurdles to understanding the difference: the classification of purchased products, the composition of contract currencies, the timing of price determination, the timing of cost recognition, whether and when higher costs can be passed on to selling prices, and changes in volumes. Reviewing these factors in sequence illustrates why the index figures should not be linked directly to financial results.
An analysis comparing disclosures from 5 related companies concludes that Kansai Electric Power should be read in terms of the timing gap between fuel costs and the tariff system; Nisshin Seifun in terms of the gap between government selling prices and the dates when prices are applied to products; UACJ in terms of bullion-price-linked pricing and inventory valuation; ENEOS in terms of crude oil market prices and inventory effects; and Sumitomo Chemical by breaking down naphtha and product market conditions by segment.