Photo Source: Elaine Meinel Supkis
The Japanese were fighting deflation in the 1990s, and subsequently, as their lending standards and interest rates were relaxed to boost money supply, the rapid rise in the cost of goods has taken the Bank of Japan for a spin. Low interest rates, even as low as negative during a few quarters in the 1990s, are now sending what was deflation to record inflation numbers. The Bank of Japan expects inflation to top 1.9%, which would be a ten year high for the nation.
No interest rate hike in the plan
The Bank of Japan is unlikely to raise interest rates, even with rising inflation concerns. High inflation coming from oil prices and higher food prices is accelerating the inflation fed from relaxed interest rate policy. The same thing applies to the US economy; low rates under Greenspan feeds the fire under inflation concerns in the US.
Consumer spending is growing
Consumer spending in Japan is expected to grow at a 1.2 percent page clip, even with inflation rising quickly. The forecast of 1.2% is lower than the previously expected 1.5%, but still healthy for an economy that fought deflation for such a long time.
Even though inflation is at a ten year high, it is still healthy for a developed country with limited natural resources. High food and oil prices should affect a huge importer more than what it is doing to the economic outlook of Japan. Japan is still a great investment for a long term perspective.