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A Weaker Yen is Not Driving Up Prices

Conventional wisdom that a weaker yen would drive up prices in Japan across the board doesn’t hold, Goldman Sachs says, as cheaper oil undercuts price pressure.

“Downward pressure on inflation from cheaper crude oil will grow more pronounced and could reach close to -0.8 percentage point mid-way through the year,” Goldman Sachs senior economist Tomohiro Ota said in a note published on Friday. Crude oil prices have declined around 50 percent since last June amid a global supply glut.

“Meanwhile, we expect the inflationary pressure of yen depreciation to be only 0.4 percentage points or so at most,” Ota said, because currency rates have a diminishing impact on prices.

CNBC [1]

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