Global Macro: Japanese Inflation Shows Policy Is on Track
NEW YORK (TheStreet) -- Japan's unprecedented monetary stimulus has pushed the yen to record lows while the Nikkei index continues to trend higher.
Prime Minister Shinzo Abe's plan to aggressively spend Japan out of its deflationary cycle seems to be working so far. Japan's core CPI number, released Thursday, was 1.2%, which outperformed expectations of 1.1% This means that inflation has surpassed the halfway point of the Bank of Japan's 2% target.
Over the past few months Abe has worked with unions to get an increase in labor pay at the next round of wage negotiations. Increased wages will justify the growth of inflation since the aggressive policy was put in place. The additional cash in consumers' pockets will work in a cyclical fashion, improving spending, which in turn will lead to improved corporate profits.
A major criticism of higher inflation to this point is that it is due primarily to the yen's weakness. The artificial weakening of the currency by the Bank of Japan has made its exports less expensive vs. its foreign competitors.
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