Japan Unable To End Deflation

Though Japan’s latest stimulus could help ameliorate the negative impact of the stronger yen, Credit Suisse analysts see little change of an end to deflation in the near term. Hiromichi Shirakawa and colleagues point out in their August 12 research note titled “Good yield hunting” that both Japanese and U.K. authorities’ recent stimulus packages weren’t potent or broad enough to shift expectations for growth and inflation.

QQE regime unable to eradicate deflationary pressure in Japan

Examining the latest Japanese stimulus package, Shirakawa and team point out that it marks the 31st economic stimulus package since the early 1990s when the economy started to take a hit the burst of the domestic asset bubble. The CS analysts aren’t excited about the latest package as they believe it is over multiple years and even decades for some infrastructure investment projects. The analysts argue that the Bank of Japan still looks reluctant to make a clearer and stronger commitment to a substantially extended period of public debt monetization.

Reviewing the potential impacts of the forthcoming stimulus package on economic growth and the debt markets, the CS analysts point out that its headline figure for total spending is JPY28.1 trillion.

The analysts argue that while the package may indeed end up generating a substantial cumulative boost for GDP in the longer run, they anticipate little prospect of sharply faster growth in any single fiscal year: