(Research Paper) Key Features of Japan's Final Demand-Intermediate Demand Price Indexes during the Post-2020 Inflationary Episode
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.
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.
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 Final Demand-Intermediate Demand Price Indexes (FD-ID price indexes), which reorganize producer prices by stage of production. We first compare FD-ID price indexes for Japan and the United States.
The results show that, in Japan, price increases varied substantially across production stages, whereas such cross-stage dispersion was relatively limited in the United States. A decomposition of the Japan-U.S. differences in price increases by stage indicates that, at upstream stages, Japan experienced larger price increases than the United States, particularly for goods such as energy and raw materials. At downstream stages however, Japan recorded smaller price increases than the United States across a wide range of goods-producing sectors.
We then examine developments in Japan's FD-ID price indexes. The evidence suggests that, across many sectors, price increases at upstream stages were accompanied by stronger price increases at downstream stages than in the past. Taken together, these results suggest that (i) even during the post-2020 inflationary episode, the overall degree of goods price pass-through by Japanese firms remained relatively restrained when compared with the United States and that (ii) goods price pass-through in Japan nevertheless became more active across many sectors relative to the pre-2020 period. *1 Research and Statistics Department, Bank of Japan E-mail : yuka.kihou@boj.or.jp *2 Research and Statistics Department, Bank of Japan E-mail : ichirou.mutou@boj.or.jp *3 Research and Statistics Department, Bank of Japan E-mail : kimiaki.shinozaki@boj.or.jp *4 Research and Statistics Department, Bank of Japan (Currently, Personnel and Corporate Affairs Department) E-mail : kouhei.shintani@boj.or.jp Notice Please contact below in advance to request permission when reproducing or copying the content of this paper for commercial purposes.
Please credit the source when reproducing or copying the content of this paper. Inquiries Price Statistics Division, Research and Statistics Department E-mail : post.rsd3@boj.or.jp
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