Japan Government Releases Inflation Escape Report

apan’s economy is on the verge of escaping from nearly two decades of deflation as it has picked up since the beginning of this year, a government report said Tuesday, emphasizing positive aspects of Prime Minister Shinzo Abe’s policies dubbed “Abenomics.”

The country’s economy trapped in prolonged deflation “has shown signs of turning around,” said the white paper on the economy and finances for fiscal 2013 released by the Cabinet Office, adding, “Consumer preference for lower-priced products has been waning.”

Deflation pushed down Japan’s real gross domestic product by around 8.5 trillion yen for three years from fiscal 2009, as an upturn in real interest rates made companies and households reluctant to take out loans to boost investment, the report said.

Real interest rates — nominal interest rates minus inflation — rise when prices are falling, meaning that real debt burdens increase and borrowing costs become higher.

But the pace of decline in consumer prices, excluding fresh food and energy, has been slowing in recent months, as the pledge by the Abe administration and the Bank of Japan to conquer deflation has bolstered inflation expectations, the report said.

The depreciation of the yen, triggered by the central bank’s drastic monetary easing, has also driven up prices of import products such as food and energy, helping prevent deflation from getting worse and lowering real interest rates, it said.

via Mainichi

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza