FOR the first time in a generation, there’s a hint of inflation in the air in Japan.

       It smells a lot like fried chicken. The 10% price hike for convenience-store chain Lawson Inc’s Karaage-kun fried chicken wouldn’t normally make headlines.

       Then again, in most countries such a product wouldn’t have gone 36 years without prices rising once.

       It’s the the latest example of what’s been called Japan’s “price-hike rush,” as the weak yen and war in Ukraine have raised the cost of inputs and imports.

       Japanese companies are starting to bow to the inevitable and passing those along to consumers.

       The trend has hit everything from the price of instant noodles to the beloved kids’ corn snack Umaibo, which rose for the first time in its four-decade history to 12 yen (nine US cents or 38.5 sen) from 10 yen (33 sen).

       Inflation is now widely projected to accelerate to the central bank’s target of 2% in April, thrusting Bank of Japan (BoJ) governor Haruhiko Kuroda’s stimulus programme into the spotlight.

       The policy divergence between the BoJ and the United States Federal Reserve (Fed), which is ratcheting up interest rates, is the chief culprit for the yen’s tumble.

       While a weak yen has historically been good news for export-strong Japan, the pace of decline is shifting the narrative.

       The currency’s 11% slide this year is exasperating the impact of rising energy and food costs at home – hardly what prime minister Fumio Kishida would want months before an upper house election.

       Uniqlo founder and Japan’s richest man Tadashi Yanai spoke for much of the nation last week when he declared the weak yen “only bad for Japan’s economy as a whole.” But Kuroda has little incentive to change course.

       Higher inflation is precisely what he’s been seeking since he became governor in 2013.

       The BoJ is on the cusp of raising its inflation forecast to 1.5% to 1.9% for the current fiscal year, compared with a 1.1% forecast in January, Bloomberg News reported last week, citing people familiar with the matter.

       Such a spike is welcome, but it’s by no means sufficient for the BoJ to exit its ultra-easy stance.

       The central bank has insisted for years that it wants to see inflation not only reach the hallowed 2% target, but stay around that level.

       Kuroda asserts that the current cost-push inflation is unsustainable, with wage growth modest and the labour market still softer than before Covid.

       That leaves little encouragement for anything as radical as a rate hike.

       In any case, the BoJ is facing very different pressures than other countries. Even if Japan’s inflation does hit 2% this month, it’s far from the 8.5% of the US or the 7.5% of the eurozone.

       Analysts from Citigroup Inc wrote this week that they expect negative rates to stay until the end of Kuroda’s term, and for his successor to review the policy next April.

       Until there is a shift that shrinks the rate-gap differential, it’s hard to foresee any meaningful strengthening in the yen. Kuroda prefers moves in the exchange rate not be rapid, but there’s little sign he’s uncomfortable with the direction.

       On the contrary, it was Kuroda’s comments in March that the weak yen was positive for the economy overall that gave traders licence for the current drop.

       Some strategists are now speculating whether the finance ministry will intervene in the market to prop up the yen.

       Others are weighing the possibility of an internationally coordinated rescue, like the one orchestrated in 1998, when the yen approached 150 per US dollar.

       The retreat may not be dramatic enough – yet – to prompt either.

       That said, there are politicians who are more sensitive to consumer grumbles. Finance minister Shunichi Suzuki said last week the yen’s decline is rather harmful because it isn’t accompanied by robust growth in wages.

       In fact, Kuroda may see yen weakness as the very thing to break the deflationary mindset that has plagued his attempts to spark price gains.

       Even as producer prices began to climb in late 2021, the BoJ was quick to point out that shifting consumers’ expectations has been difficult.

       “In Japan, the behaviour and mindset based on the assumption that prices will not increase easily are deeply entrenched mainly among firms,” the bank wrote in its January outlook report.

       “There is a risk that the pass-through of cost increases to selling prices will not progress.”

       Kuroda is right to be concerned that “good” inflation is elusive.

       Companies are often willing to squeeze their own margins first before resorting to price hikes.

       The rising price of fried chicken makes the news precisely because it’s so unusual – and it will be tougher for makers of price-elastic goods, discount izakaya pub chains and suppliers further down the value chain to raise prices.

       Harder still for the family stores and restaurants whose price margins are already practically non-existent.

       It’s possible that only a dose of “bad” inflation would be useful in disrupting this mindset.

       If that’s the case, get used to pricier fried chicken. — Bloomberg

       Gearoid Reidy is a Bloomberg News senior editor covering Japan. The views expressed here are the writer’s own.