Is Japan's Deflation Battle Really Over?

Japan's Nikkei, the nation's main stock index, peaked on the last trading day of 1989.

Since then, Japan has grappled with deflationary forces that not even the massive government stimulus program of December 2012 has squelched.

Indeed, the March 2019 Elliott Wave Financial Forecast noted:

In February, Japanese manufacturing activity contracted for the first time in 30 months, as the country's Purchasing Managers Index for manufacturers declined to a level of 48.5. A reading below 50 indicates contraction, so Japan is now added to the list of shrinking economies discussed here last month.

This leads us to an excerpt from a July 25 Nikkei Asian Review article titled "Bank of Japan is deluded to think deflation fight is over":

Has the Bank of Japan lost its senses about its decades-long battle against deflation?

It is hard not to wonder as Governor Haruhiko Kuroda declared victory at a symposium in Washington on July 22. "For the first time in about 15 years, Japan's economy is no longer in deflation," Kuroda said. He added: "Positive annual CPI inflation has taken hold."

In the most technical of senses, Kuroda could perhaps make that case. True, the consumer price index, excluding fresh food, rose 0.6% year-on-year in June.

But central bankers wisely heed an economy's trajectory more than just the most recent data series, and there are also economic data hinting at losses ahead. It is here where Kuroda may be missing the true state of affairs and downplaying rising odds the BOJ may soon be easing again.

For one thing, the June increase in core CPI marked a two-year low. And far from hitting Tokyo's 2% inflation target, prices have had a hard enough time piercing 1%. For another, top-line growth and data on exports, industrial production, investment and wages are moving the wrong way for Kuroda's deflation-is-dead line.


The wage element is most ominous of all. Inflation-adjusted pay fell for a fifth straight month in May. That 1% year-on-year-decline followed a fall in April, the clearest sign yet that the global trade war is spooking Japanese executives. Also troubling was that overseas shipments fell in June for the seventh month straight.

Prepare for what Elliott Wave International's analysts see ahead by reading the free report, "What You Need to Know Now About Protecting Yourself from Deflation."