Where Have All the 100-Yen Stores Gone?

While the overall success of “Abenomics”1 can be debated, the recent assassination of Japan’s longest serving prime minister, Shinzo Abe, the namesake of this policy, comes at a time when numerous economic headwinds have emerged for Japan. Ironically, while Abenomics was aimed at trying to help the country avoid a deflationary spiral, a new challenge has emerged in the form of historically high rates of inflation, which may prove to be difficult for Japanese companies to navigate.

Since our prior update on Japan, where we examined the impact of the depreciating Japanese yen (see: The Great Wave of Yen Weakness), global inflation has continued to percolate. While we continue to find compelling investment opportunities within Japan, we would be remiss if we did not acknowledge the impact that global inflation has had on Japanese companies.

For many years, Japan’s consumer price index (CPI) and producer price index (PPI) have generally remained rangebound. During the last 20 years, producers’ costs, in absolute terms, have generally moved on average, by about 2.3% year over year (Y/Y), while consumer’s costs have, in absolute terms, moved on average, less than 1% Y/Y.