FT.com / Columnists / John Authers - The Short View: Japanese inflation - The Diigo Meta page

• 15 Apr 08
  

  Zhuu Ming Ang

  economics

  • Japanese inflation is back, with consumer inflation now more than 1 per cent for the first time this decade. That should be a cause for rejoicing. Since 1990, the Japanese economy has, after all, been bedevilled by deflation, a symptom of the lack of economic activity.
  • This is not visible from the price of the yen, which relies more on global perceptions of risk than on anything endemic to Japan.
  • The knock-on effects are nasty. Japan’s stock market is no longer the world’s largest, as it was at the turn of the 1990s, but it accounts for almost 9 per cent of global market value, according to MSCI.
  • The Nikkei 225 is acutely sensitive to the yen, thanks to the importance of exports. It has fallen more than 30 per cent as the yen has risen.
  • There is no obvious way out. Higher inflation usually aids the case for raising interest rates, which would further strengthen the currency. Weak growth and cost-push inflation argue for a cut in rates.

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