Year-over-year inflation in Japan is now 0.9%. While not much, after decades of deflation, it’s good news. That said, most of the inflation is the result of higher energy and electricity prices, not wages. And higher energy costs are the result of the yen’s recent 25% depreciation against the US dollar, combined with oil being priced in dollars and Japan having to import more oil than ever post Fukushima.
Tag Archives: Japan
Disappearing Inflation
Adding to the low inflation environment we’re in, is Japan’s central-bank bond buying. By reducing the value of the Yen by about 20% in just a few months, it has made buying Japanese cars and other Japanese goods cheaper. And that puts downward pressure on prices of substitute goods. For example, to hold domestic market share, US automakers must minimize price increases by keeping wage growth low and strong-arming suppliers.
The Zen of Yen
New Japanese Prime Mister Shinzo Abe has pushed the Yen down 15% against the dollar since 10/12 because of his insistence that the Bank of Japan create inflation by pumping more money into the economy. Moreover, the new Abe appointed Governor of the BoJ will enthusiastically embrace this new policy, unlike the outgoing Governor. Another reason why it’s happening, Japan is running trade deficits and a weaker yen boosts exports.