by Chris Becker
Fair shake of this sauce bottle this ain’t – Japan’s latest attempt at fostering domestic inflation is wavering as core consumer inflation figures released this morning indicate.
Like most central banks, the BOJ has a target range of 2% for inflation, but unlike other economies it suffers a severe deflationary past that could continue to extend into the future.
Now the headline figure looks good – mainly because of a big sales tax rise enacted in April this year, but if you strip away this effect, inflation is hovering around 1% (chart from Forexlive via FT):
The trend is pretty obvious and although the BOJ is confident it can be arrested, mainly due to very tight employment markets, the internal structure of the economy remains pretty weak.
One way to increase inflation is continued weakening of the Yen, with the USDJPY pair soaring from ca. 80 to almost 109 since early 2012:
This was on the back of the move back in April 2013 when the BOJ unleashed what seemed like the 100th variation of central bank “Godzilla” – committing to doubling base money in the system, by buying pretty much anything (stocks, bonds, property) with freshly printed Yen.
You can only print so much though – the structural problems of Japan’s economy – a poor demographic profile, a corporate balance sheet stuffed with cash but next to no investment, and huge fiscal imbalances – will require more than central bank machinations.