Japan Times–Get Ready for Rising Prices

Japan Times–Get Ready for Rising Prices

November 7, 2004

Doubters in the sustainability of Japan’s recovery should read this article. The change of monetary policy to quantitative easing, that is, deciding the amount of reserves to inject into the banking system each month, rather than target an interest rate, is what broke the back of Japan’s 13 year deflation. The recovery is real.

For the first time in eight years, Japan’s consumer prices (excluding those of perishable food) are forecast to rise on an annual basis, albeit only slightly. A 0.1 percent increase in consumer prices is expected for the fiscal year starting April 1, 2005, according to an economic and price outlook released in late October by the Bank of Japan.

Don’t worry about inflation in Japan; that’s not in the cards. This year’s numbers are showing the impact of the commodity price jump. The best bet for next year is 0-1%.

The only risk now is that the Bank of Japan–usually the Fed’s Mini-Me–would decide to return to the disastrous policies that got them into trouble in the first place. I think we have another year before they start loading the gun they will use to shoot their feet off.

Until then, I am long Japanese stocks. There is an exchange-traded fund with ticker EWJ listed on the American Stock Exchange that makes it easy to do.

John Rutledge

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