Inside the currency market: BOJ corporate goods price index (1980-2023)

Corporate goods price index

From current yearly numbers : 2.5 for Exports Vs -14 for Imports. Monthly = 1.7 exports Vs 2.1 imports. Index values = 135.3 exports Vs 162.5 imports or 27 points.

The BOJ is subject to intervene anytime. This statement is not valid based on historical data dating to January 1980.

Price index

From January 1980 to March 1986, Exports exceeded imports by roughly 20 ish points on a monthly Yen basis perspective and from price indices. January 1980 began with a monthly view at 20.8 exports Vs 84.4 to imports or a 50 ish point spread. The 50 point Index spread was a doubling to the monthlies at 20.

From January 1980 to October 2007 from the price index, exports outpaced imports and by a roughly 20 to 30 ish point spread. A massive change occurred to the price index as imports exceeded exports from 2007 to May 2020. A brief period existed from December 2008 to December 2009 when exports began to eclipse imports.

Since January 2021 to September 2023, Imports surpassed exports and the furthest spread hovered at a 50 point difference.

The concept of Producer Prices was added as a feature in January 1995. The association to Producer Prices is clearly aligned to Export prices from a year to year change perspective and the monthly release to Producer Price never travels far from the export price.

From August 1980 to 1986, the monthly releases to yearly spreads to imports and exports began a massive compression from a 37 point spread to roughly 2 and 3 points. Signature of the Plaza Accords in September 1985 by the then G 5 nations experienced spreads began to widen again to 20 and 30 points and lasted to January 1987.

The purpose of the Plaza Accords was to force the United States to devalue its currency due to a current account deficit, approaching an estimated 3% of GDP according to Paragraph Six of the accords. More importantly, the European nations and Japan were experiencing enormous current account surpluses, as well as negative GDP growth, threatening external trade and GDP growth in their home nations.

While Exports surpassed imports from price indices, the yearly change view was quite different as imports beat exports for the vast majority of months from January 1980 to September 2023 except for very brief months along the way.

The criteria for BOJ intervention is located in monthly change data and by the component of the later addition to the exchange rate. Both data points are missing from the total view dating from 1980 to 2023.

The only change to the total data was the Export data changed to Import domination from price indices. Yet this offers nothing to intervention nor to Import and export lines.

Leading to the October 2022 intervention, monthly data at – 2.3 for exports and -2.1 Imports in August was hardly a reason to intervene. USD/JPY reported -1.1 and a USD/JPY appreciation. September was a blow out month as 2.9 exports was matched by 5.3 imports and 5.8 to USD/JPY. September’s yearly change stood at 28 points from 20.2 exports to 48.7 for imports. Good reason to intervene.

The Corporate Goods Price Index is clearly the superior indicator compared to actual trade figures due to concepts of Import/ Export lines from monthly numbers, Intervention and to capture more perfectly the exchange rate.

As the BOJ states to trade balance figures: Large fluctuations in the foreign exchange market tends to lead to data for real exports/imports overestimating actual developments when the yen is appreciating, and vice versa when it is depreciating.

As the current Price index contains a 27 point difference to imports to exports, true to historic form  and a 0.4 figure where imports exceed exports, the BOJ will watch the current developments until November upon the next release. If imports continues to beat exports then chances are good for intervention, particularly if price indices contain the historic 27 point spread.

Most vital are imports to exports rather than the exchange rate. If USD/JPY traded at 170.00's and Imports and exports aligned properly, the BOJ contains no desire to intervene. Intervention comes only when imports and exports are off balance.