The Bank Of Japan Isn’t Fazed By Inflation

The Bank Of Japan Isn’t Fazed By Inflation
Stéphane Renevier, CFA

5 months ago2 mins

What’s going on here?

The Bank of Japan (the BoJ) remained unfazed by inflation, keeping its interest rates firmly in the negative.

What does this mean?

Countries around the world may be lamenting rising prices, but after years spent battling economy-crushing deflation, Japan actively triggered intense measures to bring about inflation. That wish came true: inflation in the country just came in above target for the seventeenth month straight. The BoJ’s not willing to take any risks after finally getting what it wanted, so the central bank kept its short-term target interest rate in the negative and its longer-term ones near zero. (That’s an unusual monetary policy strategy called “yield curve control”.) And while investors were expecting some hints of a broader change in strategy, that didn’t happen. You know what they say, if it ain’t broke…

Japan inflation

Why should I care?

For markets: Japanese grass really is greener.

Japan has struggles, sure, but investors are still much keener on the Land of the Rising Sun than most other Asian countries. After all, Japan’s macro outlook is brightening up, the country’s companies are boasting attractive valuations, and profit-plumping corporate shake-ups are in the mix. That has big names like Warren Buffett buying up hefty stakes in the country’s firms, along with hedge funds and major asset managers. So now, Japan’s stock market is sitting at the world’s top table, spurring hopes that the country may have truly turned a corner.

Topix
Source: Google Finance

The bigger picture: We’re (not) all in this together.

With the Federal Reserve waxing lyrical about inflation, it’s easy to forget that not every country is fighting the same battle right now. China’s in the ring with deflation, while emerging markets that hiked rates early have managed to essentially tame their rising prices and can focus on economic support. For investors keen to diversify, that sounds like the perfect time to spread your eggs across baskets all over the world.

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