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Will Japan Declare an End to Deflation?

Originally published by Reuters on October 26, 2017 Read the original article.

Here’s what EWI’s Asian-Pacific Financial Forecast said on Oct. 6:

[Japan] Prime Minster Abe dissolved parliament’s lower house last week ahead of a snap election to be held one year ahead of schedule. He appears to be applying the same good judgment he showed when he called a snap election in November 2014, in the early stages of the 2014-2015 bull market. The rising mood of the times should favor the ruling party.

Sure enough, on Oct. 22, Abe’s ruling Liberal Democratic Party achieved a resounding win. But, when it comes to deflation, the government is reluctant to declare a victory.

However, Japan’s financial authorities are hopeful about the next two years.

Read this excerpt from an Oct. 25 Reuters article:

Japan’s government may be able to declare that the economy has made a sustained exit from deflation before it implements a scheduled sales tax hike in October 2019, government officials said. …

“Work is already under way in analyzing when the government can declare an end to deflation,” one of the officials said.

The government has held off on declaring a complete end to deflation given the fragile state of the economic recovery and the risk of prices falling again.

The announcement could be made if consumer inflation accelerates to around 1 to 1.5 percent and the gross domestic product (GDP) deflator – another price gauge – is stably above 1 percent, the officials said on condition of anonymity as they were not authorized to speak publicly.

Core consumer prices rose 0.7 percent in August from a year earlier, marking the eight straight month of increases, partly reflecting bright signs of growth in the economy.

But the GDP deflator fell 0.4 percent in April-June from the same period of the previous year, declining for four straight quarters in a row.

Japan has suffered 15 years of grinding deflation since an asset-inflated bubble burst in the late 1990s. Ending deflation has been among Abe’s top priorities since he assumed power in 2012.

You can read the entire article by following the link below:

https://www.reuters.com/article/us-japan-economy-deflation/japan-may-declare-end-to-deflation-before-2019-tax-hike-sources-idUSKBN1CU0AO

 

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