In spite of all the recent stimulus talk, Bank of Japan continues to battle deflation.
NY Times: - Deflation remains firmly entrenched in Japan, figures showed Friday, as the central bank projected that its targeted level for inflation was still some years off, underscoring that there are no quick fixes for one of the world’s largest economies.
Prime Minister Shinzo Abe, who took office last December, has made the fight against deflation — the damaging fall in prices, profits and wages that has dogged Japan for most of the past 15 years — a main part of his economic policy. He pressed the central bank to commit to a target of 2 percent annual inflation, considered by many economists a healthy level.
The yen strengthened by over a percent today, driven mostly by weak US first quarter GDP reading of 2.5% (vs. 3.1% expected). But this yen strength is unlikely to persist. Given Japan's deflationary pressures and the government's commitment to address the situation, the BOJ will press the pedal on monetary expansion. And in a race against the Fed, the BOJ is ultimately expected to "win" (see discussion). It's only a matter of weeks before USD/JPY breaks above 100 as the yen continues to march along its weakening trend.
|Yen per one dollar|
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