The Bank of Japan Governor said recent sharp gains in oil and food prices could push up Japan’s consumer inflation in the coming months. Year-on-year growth in the core consumer price index, which already reached 0.8 percent (in December), is expected to accelerate significantly at one point and possibly reach 1 percent given recent surges in crude oil and food prices. Unless crude oil prices continue to rise at the current pace, consumer price growth will start to slow but will not return to zero as long as Japan’s economy achieves stable growth around two per cent. The core consumer price growth will likely move in line with the BOJ’s forecast of 0.4 per cent for fiscal 2008/09.

Job seekers outnumbered positions available last month for a second consecutive month, with the ratio falling to the lowest level since October 2005, the Labor Ministry’s report showed. The ratio of jobs to applicants slipped to 1.04 in whole year 2007 from 1.06 in 2006. In fact the number of unemployed persons in December 2007 was 2.31 million, which was a decrease of 130 thousand or 5.3 per cent from December 2006, while the number of employed persons stood at in December 2007 63.96 million, an increase of 420 thousand or 0.7 per cent on the previous year. The average unemployment rate for whole year 2007 was 3.9 per cent which was down from the 2006 average of 4.1

Meanwhile, Japan’s merchandise trade surplus fell for the second straight month in December as higher crude oil prices inflated imports and exports to the US dropped for the fourth month in a row.The trade surplus dropped 20.9 per cent to 877.87 billion yen from a year earlier, smaller than the market’s consensus forecast for a surplus of 926.9 billion yen. The fall followed a 12.2 per cent decline in November.Higher oil prices largely pushed up imports while Japan’s domestic demand itself remained stagnant, and this trend is likely to continue as oil prices are expected to stay in a high range. crude oil: Imports increased 12.1 per cent to a record 6.559 trillion yen as the average price of crude oil rose 54.6 per cent to a record $90.60 per barrel. The previous record was $81.10 per barrel, which was only reached in November.The value of crude imports rose 49.2 per cent, pushing up overall imports by 8.4 percentage points. Purchases of liquefied natural gas rose 28.6 per cent, pushing up overall imports by another 1.2 percentage points. Imports of other petroleum products surged 37.4 per cent in December, adding a further 1.0 percentage point to overall growth in imports.

Exports rose by a moderate 6.9 per cent to 7.437 trillion yen, rising for the 49th straight month, on higher shipments of cars and telecommunications equipment. The December data showed that Japan’s exports continued to be upbeat, propped up by strong demand from the Middle East, especially vehicles, and shipments to Asia, although exports to the US declined. Japan’s exports are expected to contribute to raising Japan’s gross domestic product for the October-December period by 0.3 percentage points. Overall exports, however, maintained their rising trend as brisk exports to China, the EU and oil producing nations more than offset the decline in exports to the US.

The faster-than-expected inflation rate is causing a dilemma for the Bank of Japan, which is coming under pressure to lower rates at a time when some board members are increasingly concerned at the public’s inflationary expectations. However, the Bank of Japan has left interest rates unchanged, despite market turmoil. The central bank’s board’s unanimous vote to hold rates at 0.5 per cent came as Japanese stocks fell 5.7 per cent to two-year lows with investors following others around the world in dumping stocks. The yen hit a two-and-half-year high against the dollar.

A rate hike to 0.75 per cent, once considered a near certainty by the end of last year, has been stalled by mounting threats to Japan’s economic outlook and slowing US growth. The Bank of Japan has maintained it will raise rates gradually in line with improvements in the economy to keep it from overheating. But tame price growth and market turmoil ensuing from the US subprime problem have kept it from raising rates since February last year.

Russia

Russia’s economy expanded last year at the fastest pace since 2000 as a record flow of money into the country spurred capital investment and a consumer boom. Growth, at an annual 8.1 per cent, beat government forecasts and compared with a revised 7.4 per cent rate in 2006.The pace is faster than the government and economists expected, with Finance Minister saying 2007 growth reached 7.8 per cent. The world’s biggest exporter of crude oil and natural gas has entered its 10th consecutive year of growth, boosted by rising incomes and consumer spending. Net capital inflow almost doubled in 2007 to $82.3 billion. At the same time end of year inflation was running at 11.9 per cent in Decemeber 2007.

This figure gives grounds to expect the Russian economy to grow at least 6.5-7 per cent annually within the next three years. Investment growth in December was up 24 per cent on the previous year, and industrial production rose 6.5 per cent at the end of last year, while construction grew by 20 per cent. These figures suggest that the fundamentals of Russia’s economy are strong enough to support growth and that the Russian markets will be able to resist the global financial turmoil.

Russia’s inflation rose in 2007 to the highest in four years in December as the government proved unable to put a brake on food prices and wages even while investment soars. The rate for the year rose to 11.9 per cent from 9 percent in 2006, the first time that the rate has surpassed the previous year since 1998.Consumer prices rose 1.1percent in December, compared with a 1.2 per cent advance in November. Inflation further accelerated in January to its fastest pace in 30 months as oil and gas prices surged, fueling consumer demand. economic growth: Russia’s economic growth in 2007 has proved to be the highest in recent years and this trend will persist in 2008. In the past five years, the Russian economy has grown at an annual rate of above seven per cent, except for 2005, when GDP expanded 6.4 per cent. The global economic crisis is unlikely to affect Russia considerably as Russia’s economic growth is increasingly based on domestic demand. According to some private economists, Russian economy is revealing a signs of overheating and in 2008 is expected to slow down. Economists claim that Ruble may continue to reinforce because of the high inflation rise. Growth of the gross domestic product (GDP) in Russia slows in 2008 at 6.7 per cent

Import demand growth is expected to ease because the upward pressure on the ruble will presumably weaken somewhat once the strong rise of oil prices experienced in recent years levels off, as expected and because the economic expansion will lose some momentum. Rapidly rising imports are not yet considered to pose a threat to Russia’s external balances. Given the persisting dependence of the Russian economy on the extraction and export of raw materials, the oil price remains a key risk factor for Russian growth. If the oil price were to drop sharply, Russia’s current account balance could run into the red in one or two years from now and economic growth could suffer.

There is pressure to loosen fiscal policy in Russia. Thus, government consumption is expected to speed up somewhat in 2007 and in 2008. GFCF is predicted to continue growing at a robust pace in 2007 and 2008, driven by huge projects in the energy sector and increased public investment. Rapid economic growth and the further real appreciation of the ruble will sustain high import growth which, however, is expected to decline somewhat. Furthermore, the stability of the capital inflows is not guaranteed. Another risk factor consists of a possible excessively quick appreciation of the real exchange rate, triggered by accelerating inflows of energy proceeds and/or capital inflows.

The rapid expansion of domestic lending, which has been going on for some years now, will also trigger risks if the number of problem loans swells further.