Japanese Inflation Might Act Coy, But Prices Picked Up Again Last Month

Japanese Inflation Might Act Coy, But Prices Picked Up Again Last Month
Paul Allison, CFA

3 months ago2 mins

What’s going on here?

Japanese prices kept climbing in October, proving that inflation’s more bold than the country may have expected.

What does this mean?

The Bank of Japan (BoJ) has spent the last two decades wrestling with economy-crushing deflation – that’s falling prices. That might be why it’s a little rusty when it comes to handling the opposite foe. October’s core inflation – stripping out volatile fresh food costs – was 2.9% higher than the same time last year, landing above target for the 19th month in a row. And if you take changeable energy prices out of the equation, prices were up 4%. Now the pressure’s mounting on the BoJ to ramp up the interest rates that the country’s famously kept squashed.

Japan inflation

Why should I care?

Zooming out: Inspiration meets perspiration.

Just because stuff like toilet paper's cheaper, your total student loan hasn’t changed – even if interest rates influence the monthly payments. That’s why Japanese companies don’t have much debt on their books: while prices were falling, the underlying burden only looked bigger in proportion, in theory taking more sales to pay off. But now that prices are on the up, firms may be more tempted to borrow cash. And because that tends to incentivize firms to work harder and more efficiently to keep up with payments, investors could see revitalized companies and stocks across the country.

The bigger picture: Japan could be a pricey trip.

The BoJ’s loyalty to low interest rates has weighed on the country’s currency, letting the yen slide lower all year. That’s making it more expensive to import stuff from abroad – something Japan has made a major habit of doing. If the BoJ does end up bringing rates up a little, that could strengthen the yen. So if you’re padding out your wallet before an Asian vacation of a lifetime, you’ll want to get to the currency exchange desk stat.

Yen vs dollar
Source: Google Finance
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