TOKYO - A prolonged weak yen and rising prices are pushing up the cost of everything, from daily necessities to seasonal treats, prompting Japan’s central bank—often described as the nation’s “guardian of prices”—to step in. The Bank of Japan is trying to curb the weak yen and inflation through interest rate hikes, but doubts remain over whether that alone will be enough.
With Christmas just around the corner, cakes are expected to take center stage at holiday tables, yet pastry shops heading into their busiest season say they are increasingly worried about falling sales. At Adria Confectionery, CEO Tetsuro Sato says customers are opting for smaller cakes, reflecting tighter household budgets, adding that cakes, as a discretionary item, are taking one of the hardest hits.
The reason is higher prices. Cake prices have risen by about 150 yen, and even during the Christmas season many customers are choosing smaller sizes or individual slices instead of full cakes. This year’s average price for a Christmas cake stands at 4,740 yen, nearly 900 yen higher than four years ago.
Behind the increases are rising costs for imported ingredients. Belgian chocolate now costs roughly twice as much as it did three years ago, while fruits and nuts are up by 20% to 30%. The driving force is the prolonged weakness of the yen. Sato says the shop has considered switching entirely to domestic ingredients, but that proved difficult, adding that as long as the weak yen persists, ingredient prices will continue to rise.
Over the past five years, the yen has fallen rapidly, sliding from around the 100-yen range to the high 150s against the dollar, touching the 155.90 level recently. Estimates suggest that the weak yen alone has increased the average household burden by about 87,000 yen.
The Bank of Japan is also growing increasingly concerned. Governor Kazuo Ueda said on December 1st that a weaker yen pushes up import prices, which are then passed on domestically, clearly acting as a factor that drives prices higher.
The BOJ’s trump card to halt the weak yen is an interest rate hike. At its monetary policy meeting being held today and tomorrow, the central bank is widely expected to raise its policy rate from around 0.5% to 0.75%. However, skepticism remains in the market. Hajime Kato, chief economist at Totan Research, says markets are questioning whether the BOJ truly has the resolve to stamp out the weak yen and inflation, with many believing the central bank will struggle to continue raising rates, limiting the yen’s upside.
As a result, market attention has already shifted to the timing of any further rate hikes, and it remains unclear whether a single increase will be enough to rein in the weak yen. With currency-driven inflation continuing to build pressure on prices, attention is now focused on how much determination Governor Ueda will signal at his press conference on Friday.
