Inflation Returns to Japan

Two pieces of good news from the Japanese economy this week that take effect on the property market.

First, The NYTimes on the overall state of the economy.

Secondly, The Wall Street Journal on the return of inflation.

So, Japan has once again left recession. Perhaps not big news as the last ten years have seen a number of downturns and upticks in the overall direction of the economy, but this one does prove that fears over Abenomics that were manifesting a few months ago were way too quick and as it increasingly appears, misplaced. The recession was short and mild and did not get in the way of underlying growth.

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The second piece of good news for those effected by the Japanese economy was that inflation returned. This was at an underlying level – despite the rise in sales tax and cheap oil effecting the value of goods and services, there remained a core rise in prices in Japan.

2015 could also continue to be a good year for the Japanese economy and the man whose policies have come to define it in the last few years – Prime Minister Abe. He has postponed a second sales tax increase but remains free to bring it back when timing is judged to be right. A weaker yen has brought about an increase in manufacturing and allowed Japanese companies to report significant profits for the first time in  long time.

That leads to the next knock-on effect which is an increase in wages for domestic workers – evidence of which has also been seen, with more is expected to come as companies face growing political pressure to pass on those profits. What Tokyo`s politicians are banking on is that by pushing through wage rises into the private sector then consumers will only notionally notice the increase in prices and continue to spend. On this it is still early days but the initial data does seam to be positive.

All this feeds in – as the economy settles into a steady but consistent growth pattern (economists tell The New York Times to expect 1.5% per year) and the value of assets rise, then capital gains on Tokyo homes, which we have already seen in some areas, will effect what and where you buy Japanese real estate.

See our related article here.

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