Kuroda, the Bank of Japan Governor, is set to speak today in Zurich. Each one of its intervention are well regarded by financial markets. Indeed, it is still very interesting to know how he will address the lack of inflation in one decade. The truth is that strategy remains absolutely the same and can be sum-up in two words: all-in.
On the data side, the recent the PPI – Producer Price Index - for October has increased 3.4% y/y from 3.1% and September data has been revised up to 3.1%. GDP for Q3 is expected tomorrow and is nonetheless expected lower than Q2 04 q/q versus 0.6 q/q.
We consider that the due to the amount of money injected in the market, this should translate at some point in inflation. And this inflation is highly needed to kill the debt that was first needed to create… inflation. Then it is very easy to imagine than Japanese central bankers hope that inflation will soon run and kill the massive debt which currently represents officially 250% of the GDP.
Inflation data such as the National CPI is on the rise for last data available, in September with 0.7% y/y. Tokyo CPI excluding fresh foods in also on a growing momentum. And retail sales increase as well. In other words the demand for good increase. We may be at the inflection point for Japan. Only time will tell. But from a virtuous circle to a vicious circle, the border is very thin.
By Yann Quelenn