Talk is cheap

More talk from the BoJ governor about the willingness to add stimulus, if necessary. Kuroda still expects inflation to pick up and reach the 2% target, and the bank will monitor the impacts of the markets on the economy. These attempts to talk down the currency are not having the same effects on the Yen or inflation expectations that the BoJ would like because the US Fed governors are speaking louder and with a more powerful message. With the US having the ability to reverse the current trend in policy, any talk towards that end will trigger more price movements in the dollar then Japan talking of more of the same waiting for inflation and adding stimulus if necessary.

Source: finance.yahoo.com

Trying to talk up inflation expectations in Japan is challenging in the face of the economic and regional uncertainty. Getting consumers to change their mindset without major changes to their sentiment will be challenging. Uniqlo is a good example of a company that changed course on their pricing after initially raising prices last year. The consumer did not accept the price increases and other companies did not follow suit, hurting the company’s bottom line and having them abandon the price increase plans.

Source: finance.yahoo.com

The raising of prices for the sake higher prices will not stoke inflation. In a competitive marketplace companies are going to continually lower prices in pursuit of more market share and higher returns. Higher prices therefore will have to be pushed onto all companies equally for prices to rise. This can be achieved by higher input costs and transportation costs, which are not on a good trajectory. Increasing the costs of borrowing will be another way to affect companies prices equally (depending on their debt needs), which is also hitting lows. These factors combined with the regional economic and geopolitical issues are not conducive to an environment where prices have to go up and consumers are forced to accept the change, in fact the opposite is going to occur under these conditions without more of a commitment to stimulus.

Source: investing.com