Japan’s inflation in January matched the highest level since 2008 as the government tries to wipe out deflation and drive a sustained recovery in the world’s third-biggest economy. The overall consumer price index rose 1.4 percent from a year earlier, while inflation excluding perishables and energy held steady at 0.7 percent.
“Demand is likely to decline considerably after the sales-tax increase,” Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo, said before the release. “The tax-rise may have a harsher impact on the economy than the government and BOJ predict.”
JP Morgan’s head of Japan rates and foreign exchange research, Tohru Sasaki, believes that inflationary pressures and a weakening Yen will force Japanese investors to seek out higher yielding currencies once more like the Australian dollar. “Japan is feeling inflationary pressure, probably because of increasing imports from Asian countries, which is why their trade balance is deteriorating. If this continues and Japan’s inflation pressure remains very high, this means the devaluation of the currency so people will realise they have to get out and invest in higher yielding assets or stocks,” he said in a visit to Sydney this week.
Mr Sasaki said while he agrees with Japan’s quantitative-easing strategy, he thinks the structure of the nation’s economy has changed and it was likely to stymie growth in the years ahead.
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