A Yen for Inflation

Japanese consumer prices for March were released today and had fallen by 0.9% annualised, the most in two years, highlighting the challenge facing the new Bank of Japan Governor, Haruhiko Kuroda, who has set a 2% pa inflation target by 2015.

As seen in the chart below, Japan’s CPI has been trending lower since December 1990, about a year after the Nikkei’s historic peak, with periods of outright de-flation shown in red and despite a sharp increase in fuel prices last year.

weekly_blog_130426_01

According to a recent Tokyo-based Barclays PLC report, the fall is due to a 17% drop in the price of televisions year on year and the 18% fall in the price of air conditioning units. However, this appears to be getting “cause and effect” arse about face and clutching at straws.

More likely its to do with ever strengthening Yen which commenced way back in early 1985, over which time it has risen in value by 70% by the end of 2012, as can be seen in the next chart.

weekly_blog_130426_02

Judging by this chart the Yen will need to weaken substantially for CPI to get anywhere near the 2% objective, possibly as weak as 170, a 70% fall from its current value of 99.

However, in the short term the recent weakness looks to have travelled too far, too quickly, hence the Yen will likely claw back some losses towards the 90 level.  Thereafter, look out!

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One response to this post.

  1. […] “A Yen for Inflation,” commented on the goal of the Bank of Japan Governor, Haruhiko Kuroda’s 2% pa inflation target […]

    Reply

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