Households face the prospect of sustained inflation for the first time in almost a generation, a dynamic that could hurt spending unless wages begin to rise. The focus is turning to salary negotiations early next year that may determine the success of Abe's bid to reflate the world's third-largest economy.
“The data reflects the clear effect of rising import prices, said Hideo Kumano, chief economist at Dai-ichi Life Research Institute in Tokyo. ”The tone is strengthening for Japan to emerge from deflation and that is helping to set conditions for wage increases.”
One of the greatest challenges in breaking Japan's deflationary cycle has been in changing consumer habits which became accustomed to delaying purchases in order to secure lower prices. Aggressively targeting the value of the Yen has boosted prices for imported goods, not least commodities and especially energy. The next ingredient will be wage growth and we are already seeing signs of movement on this front with Nomura committing to increasing what it pays employees.
The Nikkei-225 Index has rallied over the last three weeks to retest the May peak near 16,000 and while there is scope for a pause in this area, a sustained move below 14,000 would be required to question medium-term scope for additional upside.Back to top