Japan has long hoped for a bit of inflation—but not this sort ----Bhavya Upadhyay
The article discusses on the good, the bad and the ugly side of the rising inflation in Japan. All over the world inflation is raising its ugly head but for a country like Japan it may be a blessing in disguise. An inflation of 1.0% in Japan may be a good sign, a case of the economy finally moving out of the long decade of deflation. The article explores on how the Japanese economy will benefit from inflation in terms of the increase in the domestic demand, the increase in the existing intact interest rates of the BoJ and the encouraging signs of the freely available credit situation in Japan. It also discusses the companies regaining their pricing policies and an increase in the wages of the employees. The article points out that the rising prices in Japan may be primarily due to the increase of the food and energy prices instead of the rising consumer demand which might result in an economic slowdown.
The companies will regain the pricing power and workers might pocket in that extra yen. The rising prices will make the consumers buy the goods and services in the immediate future as they expect the prices to be higher even further and thereby increase the domestic demand. This increase in domestic demand will actually give the companies a chance to price their products higher and thereby contributing more to inflation. Companies with higher profits in turn would give higher pay higher pay packets to the employees and the employees would in turn contribute to the spending in the economy and thereby creating a vicious circle. This will also result in the Bank of Japan lending more to the consumers and the consumer using this money to buy in the market. It may result in the corporate Japan gearing up by going for enhancing returns. Also with the value of the savings in the bank being trimmed by inflation, Japanese would try out other options like bonds, shares etc , thereby...
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