In Japan, low inflation shows economy still weak

Joong Ang Daily ^ | 09/25/2013 | JoongAng Daily

[TexGrill]

The Federal Reserve’s surprise decision to delay tapering stimulus as inflation remains subdued suggests Bank of Japan Governor Haruhiko Kuroda faces an uphill battle to stoke price increases with quantitative easing.

Japan’s implied forward yield, which indicates bond investor expectations of the two-year note rate in 2015, has fallen to the lowest since April 4 when Kuroda began unprecedented stimulus, at 0.24 percent last week. That suggests the market doesn’t expect inflation pressure to push up yields for at least two years. The equivalent rate in the U.S. declined to a month low of 1.8 percent on Sept. 18.

While Japan’s consumer prices excluding fresh food rose 0.7 percent from a year earlier in July, the fastest increase since 2008, a bond market gauge is signaling inflation of 1.36 percent over the next five years, falling short of the BOJ’s 2 percent target by 2015. BOJ board member Takahide Kiuchi said on Sept. 19 it’s “highly uncertain” whether the goal can be met in two years and that the inaction of Fed Chairman Ben S. Bernanke’s board shows how hard it is to end unconventional policy.

“There are fewer and fewer investors who expect the BOJ to achieve the inflation target,” said Toru Suehiro, a market economist in Tokyo at Mizuho Securities, one of the 23 primary dealers obliged to bid at Japanese government bond sales. “Most people anticipate additional easing, so shorter-term yields are more likely to fall as the clock keeps ticking” toward its two-year deadline, he said.

[TexGrill]

Global business tip

[BfloGuy]

Why anyone would think you need to debase the currency to grow the economy [produce more goods and services] is beyond me.