Can Japan Finally Leave Deflation Behind? | Markets | 08/08/2022

Recent data and surveys indicate that more Japanese companies are passing on higher costs, which are mostly attributed to higher commodity prices and a weak yen, to consumers. “This is new,” says Naoki Kamiyama, chief strategist at Nikko Asset Management.

© Nikko AM

Naoki Kamiyama, chief strategist at Nikko Asset Management, sees signs that Japan may be emerging from deflation, but also has doubts: “Japanese companies, long mired in a deflationary spiral, hesitated to raise their higher costs when the latest inflation began to dump On consumers.Some experts believe that with the end of restraint now,Japanese companies have found a way out of deflation.However,this phenomenon may be short-lived.For the time being,inflation may be temporary.

Japanese consumers are currently buying consumer goods at higher prices, but this trend may fade and ease inflationary pressures once they fully understand the relationship between their income and inflation. Also, consumer spending may be less sustainable than in countries like the US, where Tokyo has not supported its citizens financially as lavishly as the US in the wake of the coronavirus outbreak.

But there are also positive signs
Higher bonus payments have flowed in this year, with many companies’ profits increasing significantly due to strong exports. Thanks to a high one-time income, many consumers have been able to keep up with inflation right now. This, in turn, allows companies to pass on their higher costs. Naoki Kamyama: “Wages are now likely to be the key to whether companies can pass their costs on in the long run. In the spring, when companies and employees traditionally negotiate wages, wages have risen significantly. The continuation of this trend largely depends on who is Whether exports will maintain its current strength.The strength of the Japanese economy is currently mainly explained by the recovery from the epidemic.Continuously increasing wages can help the economy shift to a long-term growth path and bring the country out of deflation but for now, it is still like this The scenario is uncertain. (kilobytes)