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6 Mar 2013
Forex Flash: Is a 2% inflation target realistic? - Nomura
Nomura economists have taken a look at the Japanese 2% inflation target and believe that while it will be difficult, a stepped-up commitment to monetary easing is significant.
They note that since the bursting of the 1980s economic bubble, inflation has never stayed above 2% for long, except when the consumption tax was introduced in April 1989 and raised in April 1997, or when crude oil prices were increasing sharply (2008 H1). Stripping out the effect of consumption tax increases, they feel that the YoY chaneg in the CPI has exceeded 2% in only four months in the past 20 years. As such they think that it will be difficult to achieve inflation of 2%. However, they add that sustained inflation in positive territory could occur when the effects of Abenomics emerge. They also add that monetary policy will raise market expectations and anticipate an inflationary impact from both higher share prices and the weaker Yen.
They note that since the bursting of the 1980s economic bubble, inflation has never stayed above 2% for long, except when the consumption tax was introduced in April 1989 and raised in April 1997, or when crude oil prices were increasing sharply (2008 H1). Stripping out the effect of consumption tax increases, they feel that the YoY chaneg in the CPI has exceeded 2% in only four months in the past 20 years. As such they think that it will be difficult to achieve inflation of 2%. However, they add that sustained inflation in positive territory could occur when the effects of Abenomics emerge. They also add that monetary policy will raise market expectations and anticipate an inflationary impact from both higher share prices and the weaker Yen.