Friday March 3, 2006 - 11:38:13 GMT
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Yes, no, maybe...
Japan's Inflation Rate Quickens, Aiding Policy Change
March 3 (Bloomberg) -- Japan's consumer prices rose at the fastest pace in eight years in January, giving the central bank room to end its deflation-fighting policy as soon as next week.
Japanese Prime Minister Kouizumi thinking about the potential of economic growth being snuffed out by an appreciating yen: â€śRemember that part about us emerging from the bear grip of deflation? And remember those rumors that our government has given the Bank of Japan the green light to start down the long and winding road of normalizing monetary policy? Well, now that some of you in the market have started to take that seriously, I just want to say now, for the record, that itâ€™s all been a bit premature.â€ť
TOKYO, March 3 (Reuters) - Japanese Prime Minister Junichiro Koizumi said on Friday that Japan's economy had not yet overcome deflation completely, although there were signs the countrywas emerging from a period of falling prices.
"There seem to be signs that the economy is emerging from deflation, but we still can not say that deflation has been overcome," Koizumi told reporters.
And Japan's Finance Minister Sadakazu Tanigaki is reading the same sheet of government sponsored musicâ€¦
``We need to continue to cooperate with the Bank of Japan by constantly keeping in contact with each other and ensuring that there isn't a relapse,'' Tanigaki told reporters in Tokyo after the inflation report.
But according to Takehiro Sato, an economist who toils away at Morgan Stanley, donâ€™t worry, be happyâ€”itâ€™s Goldilocks time. Risks are real, but Japan is in a position to weather them. And by the way, the yen is undervalued and its appreciation isnâ€™t going to hurt as much as you think.
â€śExternal risks are 1) major slowdowns in the US and Chinese economies, 2) a further sharp rise in oil prices, and 3) an unexpected sharp fall of the dollar. We are not that concerned about deceleration of the Chinese economy. But a major setback in US consumption and investment, which are important sources of final demand, from a collapse of the housing bubble is likely to have some impact on the Japanese economy even with the stronger role of domestic demand. However, our scenario does not incorporate a collapse of the US housing market in the forecast period given the global stability of long-term interest rates with surplus demand for duration from aging societies.
â€śWe expect higher oil prices to push global demand to a higher equilibrium point via the oil-money recycling effect observed up to now as long as prices rise on a demand shock. Therefore, an oil price hike is likely to remain supportive of the global economy, so long as geopolitical risks, such as the Iranian situation, that cause a supply shock do not materialize.
â€śWe think yen appreciation risk is already built into the consensus view. But this factor should not significantly curtail economic activity absent a sharp, short-term move as proven by Japanâ€™s economic record up to now. Rather, the current effective real yen rate is extremely weak. Therefore, risks of a downward revision of corporate earnings are limited, even with the yen appreciation. Investors are likely to benefit if yen appreciation does not have a harsh impact on the corporate earnings and the economy.â€ť
Maybe one of those positive self-reinforcing cycles could get underway despite the best efforts of the governmentâ€¦stay tuned!
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