As central banks in advanced and emerging economies have continued with policy rate hikes in the face of continuing inflationary pressure worldwide. There has been an increase in the downward pressure that is being exerted on the global economy.
The situation in Japan, on the other hand, is not the same as it is in other countries. As the country is not experiencing the same level of inflation. Also, As a result, the Bank of Japan is able to maintain its extremely loose monetary policy.
As some investors interpret the soaring inflation level in the country as a possible sign that policy markets might make some changes in the coming year. Others believe that the ultra-loose monetary policy will remain in Japan for quite some time still.
If you want to take advantage of the rate differentials between Japan and other countries, which has pushed the Yen down against most currencies, especially the American Dollar, to unseen levels in decades, remember to always use a reliable and regulated broker like easymarkets.
What Is Inflation And How Is The Situation In Japan?
What Is Inflation And How Is The Situation In Japan Different To Other Parts Of The World?
Inflation is defined as an ongoing and sustainable rise in prices, and it is most commonly measured by the Consumer Price Index or CPI. The conflict in Ukraine has driven up the price of a wide variety of energy and agricultural commodities. As the cost of food and energy are two of the most significant contributors to inflation. Price increases in many countries to levels not seen in years. Moreover, inflation numbers are well above the CPI target of the majority of developed countries, which is around 2%.
The figures provided by Eurostat indicate that the annual inflation rate in the Eurozone reached 10.7% in the month of October 2022. It reached 7.7 percent in the United States during that same time period, while in Canada it reached 6.9%. The annual rate of inflation in Australia reached 7.3% in September 2022, while in New Zealand it reached 7.2%.
While inflation in Japan hasn’t reached the same level as in other developed countries. It has still increased in October to its highest level since 1982, reaching 3.6%. There are a number of factors that contribute to Japan’s low inflation rate. Including government intervention to control prices, an aging population, and main interest rates below zero for quite some time. In addition, Japan gradually reopened its economy after the pandemic of COVID-19. Which was a much slower process compared to other G7 economies.
Japan And Its Negative Interest Rates Policy
When borrowing rates are very low, the population (customers) often react by increasing their spending, since it is easier on their wallets to do so. On the other hand, this has not been the case in Japan, which has had interest rates below zero (at -0.1%) for the last 6 years.
This low consumer demand is helping to keep down inflation in Japan. Which is helped by the fact that Japan’s population is getting older and shrinking. As older people are saving more and spending less to make up for the lack of return on their savings. Due to negative interest rates.
Because of the low demand, many investors believe that. It is unlikely that the Bank of Japan will shift from its ultra-loose monetary policy anytime soon.