marctomarket.com / By Marc Chandler / march 1, 2013
There are two important developments in Japan that may be lost in the shuffle between the heightened uncertainty in Europe now that Italian voters appear to have rejected Brussels/Monti austerity and the US self-inflicted sequester.
The first is that deflationary forces have tightened their grip on the world’s third largest economy. The second are the weekly portfolio flows that warn that the old recycling problem may be back.
Japan reported inflation fell for the 8th time in 9 months in January. Headline CPI has fallen 0.3% year-over-year. It had finished 2012 0.1% below year ago levels.
Tokyo’s CPI for February was also reported. It tends to catch national trends. Tokyo CPI fell sharply in February. The -0.9% year-of-year pace was nearly twice January’s 0.5% decline and matches the most acute deflation since August 2010.
As we have noted, the price of money–in this case the exchange rate– moves much quicker than the prices of goods and services. It may be too early to make a firm judgment, especially as administered prices like for wheat, are on the rise. Nevertheless, it shows that the new BOJ team has its work cut out for itself to achieve 1% CPI let alone 2%.