(Research Paper) Key Features of Japan's Final Demand-Intermediate Demand Price Indexes during the Post-2020 Inflationary Episode
At a Glance
The desk interprets the recent findings from the Bank of Japan regarding the Final Demand-Intermediate Demand Price Indexes as indicative of a nuanced inflationary landscape in Japan. Per the full note, while Japan has seen significant price increases at upstream stages—particularly for energy and raw materials—these pressures have not fully translated into downstream price increases compared to the United States. This suggests a more restrained overall goods price pass-through in Japan, even as it has become more active relative to the pre-2020 period. With upcoming GDP growth and trade balance data due on May 19, traders should remain vigilant about how these indicators may influence the JPY's trajectory against major currencies.
Full Analysis
What the desk is arguing
The desk posits that Japan's inflation dynamics, as highlighted in the Bank of Japan's research, reveal a complex interplay between upstream and downstream price movements. Per the full note, Japan's upstream price increases have been more pronounced than those in the U.S., yet the downstream effects remain muted, indicating a selective pass-through of costs.
The research indicates that from 2020 to 2025, Japan's FD-ID price indexes showed larger price increases at upstream stages, particularly in sectors like energy, whereas downstream price increases were comparatively smaller. This divergence suggests that Japanese firms are still cautious about fully passing on costs to consumers, a trend that may have implications for monetary policy and inflation expectations moving forward.
Where it sits in our coverage
Our consensus target for USD/JPY is 1.075, with a range of 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which anticipates a stronger yen, while it diverges from bofa, which expects a weaker yen. The desk's target sits near the upper bound of the consensus range, indicating a more bullish outlook on the JPY.
How other firms see it
Firms like jpmorgan and citi are aligned with our view, anticipating a stronger yen based on Japan's inflation dynamics and economic resilience. Conversely, bofa holds a contrary stance, projecting a weaker yen due to ongoing global inflationary pressures and potential rate hikes in other economies.
Traders should also monitor the USD/JPY pair closely, as its movements will reflect the interplay of Japan's inflation data and the broader market sentiment regarding U.S. monetary policy.
What the calendar says
With GDP growth and trade balance data for Japan scheduled for May 19, these upcoming releases could provide critical insights into the health of the Japanese economy and influence the JPY's positioning against major currencies.
What changed vs prior statement
- 01Bank of Japan released labor market indicators alongside output gap data to better monitor wage and price pressures amid labor supply constraints.
- 02New research paper analyzes price transmission mechanisms, finding Japanese firms show more restrained goods price pass-through compared to the United States.
- 03Study reveals upstream price increases in Japan became more actively transmitted downstream post-2020, though still more moderate than U.S. counterparts.
From the original
Key Features of Japan's Final Demand-Intermediate Demand Price Indexes during the Post-2020 Inflationary Episode 日本語 April 6, 2026 KIHO Yuka *1 MUTO Ichiro *2 SHINOZAKI Kimiaki *3 SHINTANI Kohei *4 Research and Statistics Department Bank of Japan Full Text [PDF 1,008KB] Abstract The period of rising prices since 2020 has heightened interest in how price pressures from upstream stages are transmitted downstream. This study investigates the price developments over the period 2020-2025 using the…
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