AFTER two years of remission, Japan seems likely to sink back into the “chronic disease” of deflation, as Haruhiko Kuroda, the governor of the Bank of Japan (BoJ), calls it. New data are expected to show on August 28th that core CPI, the central bank’s preferred indicator of inflation, turned negative in July for the first time since the bank launched a big programme of quantitative easing (printing money to buy bonds) in April 2013 (see chart). At the time, it pledged to lift inflation to 2% in two years.
The news will heap further pressure on the BoJ to ease monetary policy yet more this year, as will worries about Chinese growth. The fact that Japan’s economy shrank by 1.6% in the second quarter on an annualised basis adds to the concerns. The central bank is currently buying about ¥80 trillion ($670 billion) of long-term Japanese government bonds (JGBs) a year, or twice the annual issuance. It now holds over ¥300 trillion of JGBs, or nearly a third of all outstanding bonds.
Mr Kuroda’s excuse for deflation’s apparent return is that the falling oil price has pushed down core CPI, which excludes fresh food but includes energy. In the longer...
from The Economist: Finance and economics http://ift.tt/1MQlKao
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