{"id":33478,"date":"2023-07-10T01:10:43","date_gmt":"2023-07-10T05:10:43","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/japan-confronts-an-inflation-sea-change-what-that-means-for-investors\/"},"modified":"2023-07-10T01:10:45","modified_gmt":"2023-07-10T05:10:45","slug":"japan-confronts-an-inflation-sea-change-what-that-means-for-investors","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=33478","title":{"rendered":"Japan Confronts an Inflation Sea Change. What That Means for Investors."},"content":{"rendered":"

After battling persistent deflation for three decades, Japan is now bracing for a different kind of fight: inflation.\u00a0<\/p>\n

The coming sea change has big implications for Japan\u2019s economy and for investors\u2014and lessons for the rest of the world. Inflation will have a major impact on Japanese companies, lifting many of their values as they become more profitable. Even after strong recent gains in stocks, it\u2019s not too late for investors to benefit from a rising inflationary tide.<\/p>\n

\n

Overall consumer prices have barely changed in Japan since the early 1990s. Japan\u2019s inflation rate ranged from a low of negative 1.35% to a high of 2.76% from 1995 to 2022. Consumer prices fell on an annual basis in 15 of those 28 years.\u00a0<\/p>\n

Many saw Japan\u2019s inability to generate consistent, predictable price gains as an example of a central bank policy failure. The world\u2019s third-biggest economy has seen 30 years of relative economic decline. Deflation discouraged spending and investment. Why buy or invest in something when there\u2019s a good chance it will be cheaper in the future?<\/p>\n

\n The Bank of Japan
\n tried everything it could to revive inflation. It was the first major central bank to buy government bonds to suppress yields, and the first to embrace negative interest rates. Even in June, as nearly all major economies except China were raising interest rates, Japan kept its ultraloose policy unchanged, and continued to target bond yields to ensure that rates stayed extremely low.<\/p>\n

Policy makers in Japan have been fighting powerful demographic pressures that kept inflation\u2014even relatively moderate inflation\u2014from taking hold. But that is starting to change as workers age and leave the labor market, squeezing the supply of goods and services the economy can provide while demand stays more or less the same. Prices have been rising faster than the BOJ\u2019s 2% target. The annual rate was 3.2% in May, and is expected to average about 2.5% this year, which means the inflation battle is now on.\u00a0<\/p>\n

Inflation is a welcome change for Japanese companies that have struggled to increase prices for decades. And it\u2019s a good thing for markets and the broader economy because it spurs growth.\u00a0<\/p>\n

Meanwhile, Japan isn\u2019t alone. No other major country has suffered from deflation in quite the same way as Japan, but others are beginning to confront the challenges of aging populations: Italy, Germany, China, even the United States, which is coping with an aging baby boom generation. At some point, they all could all see the size of the workforce decline as a proportion of their overall population, which creates inflationary pressure.<\/p>\n

Small doses of inflation, on the other hand, can be beneficial for companies because it encourages investment and provides flexibility in adjusting to higher input costs like energy or commodities. Japan\u2019s stock market has already seen a record 30% gain so far this year, and the rally could go higher. Optimism about earnings and productivity have bolstered sentiment. Another sign of optimism:
\n Warren Buffett\u2019s Berkshire Hathaway
\n this year increased stakes in Japan\u2019s five biggest trading companies that sit at the heart of its economy.\u00a0<\/p>\n

\u201cNow the Japanese government, the general public, and corporations are all ready to change,\u201d says Naruhisa Nakagawa, chief investment officer at Caygan Capital. \u201cThis could be a once-in-a-decade opportunity to buy Japanese stocks.\u201d<\/p>\n

Investors seeking to play rising inflation in Japan could buy shares of consumer stocks. Or they could mimic Buffett, with his large stakes in
\n Itochu
\n (ticker: 8001.Japan),
\n Marubeni
\n (8002.Japan),
\n Mitsubishi
\n (8058.Japan),
\n Mitsui
\n (8031.Japan), and
\n Sumitomo <\/span>
\n (8053.Japan). A broad exchange-traded fund of Japan shares could also work, such as the
\n iShares MSCI Japan
\n (EWJ) or the
\n WisdomTree Japan Hedged Equity Fund
\n (DXJ).<\/p>\n

While Japan\u2019s deflation experience began decades ago, other countries have begun to wrestle with the implications of declining birth rates and aging populations. The dynamic, driven by demographic change, is complex. Early on, an aging population creates a trend in which the ratio of workers to nonworkers\u2014mostly children and retired people\u2014grows. More workers and fewer nonworkers drive economic output even as consumer demand stays roughly the same or even falls. This stifles inflationary tendencies.<\/p>\n

Japan is famous for its bluefin tuna used in sashimi and sushi\u2014and for its huge fishing fleets. This first phase would be as if the number of fishermen in Japan kept growing, while demand from buyers of fish remains stable.\u00a0Fish prices would fall. <\/p>\n

But at some point as the aging process continues, many of those workers either retire or die, and the birth rate isn\u2019t high enough to fully replace them. Japan tried to adjust by hiring more women and delaying retirements. But the population peaked, and began falling, a decade ago. To stretch the fish metaphor, the number of fishermen began to fall, while the demand for tuna remained steady, or at least fell at a slower pace. <\/p>\n

That\u2019s when demographics shift began to push prices up rather than down. The greater ratio of dependents to workers should trigger higher inflation, and faster wage growth. Fewer workers mean that companies have to become more efficient and productive. Higher productivity means faster growth.<\/p>\n

It\u2019s not difficult to imagine that aging populations could soon become an additional inflationary force in much of the world. It\u2019s another tailwind for inflation that has picked up dramatically since the global economy emerged from Covid-19 and Russia\u2019s invasion of Ukraine.<\/p>\n

Given its history, the Bank of Japan is aware of this dynamic , though it\u2019s also sensitive to charges that it raised interest rates too early in the 1990s and 2000s. Kazuo Ueda, the central bank governor since April, has kept a steady hand so far. Still, Apollo Global Management Chief Economist Torsten Sl\u00f8k reckons that the BoJ will abandon efforts to control longer-term bond yields later this year.<\/p>\n

And there are voices warning about building inflationary pressures. \u201cThe BOJ is way behind the curve\u201d and should be tightening now, says Caygan\u2019s Nakagawa. \u201cIt\u2019s too dangerous to keep monetary policy too accommodative.\u201d<\/p>\n

To be sure, the BOJ isn\u2019t alone in thinking that the shift to higher inflation won\u2019t happen quickly. Gurpreet Gill, a macro strategist at Goldman Sachs Asset Management agrees, noting how uncertain the timing is. There are also offsetting factors, such as improvements in productivity, that could keep a lid on price increases and stop the BOJ from tightening policy to excess.<\/p>\n

Nevertheless, Japan is a prime example of how differently the economic phenomenon of inflation is being viewed from just a few years ago. \u201cThere\u2019s a growing recognition that we have come out of the pandemic with a changed environment,\u201d says Goldman\u2019s Gill. \u201cThe world is getting more uncertain and complex.\u201d<\/p>\n

Write to Brian Swint at brian.swint@barrons.com<\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

After battling persistent deflation for three decades, Japan is now bracing for a different kind of fight: inflation.\u00a0 The coming sea change has big implications for Japan\u2019s economy and for investors\u2014and lessons for the rest of the world. Inflation will have a major impact on Japanese companies, lifting many of their values as they become […]<\/p>\n","protected":false},"author":1,"featured_media":33479,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-33478","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nJapan Confronts an Inflation Sea Change. What That Means for Investors. | iFintechWorld<\/title>\n<meta name=\"description\" content=\"After battling persistent deflation for three decades, Japan is now bracing for a different kind of fight: inflation.\u00a0The coming sea change has big\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=33478\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Japan Confronts an Inflation Sea Change. What That Means for Investors. | iFintechWorld\" \/>\n<meta property=\"og:description\" content=\"After battling persistent deflation for three decades, Japan is now bracing for a different kind of fight: inflation.\u00a0The coming sea change has big\" \/>\n<meta property=\"og:url\" content=\"https:\/\/ifintechworld.com\/?p=33478\" \/>\n<meta property=\"og:site_name\" content=\"iFintechWorld\" \/>\n<meta property=\"article:published_time\" content=\"2023-07-10T05:10:43+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-07-10T05:10:45+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/07\/1688965844_social.jpeg\" \/>\n\t<meta property=\"og:image:width\" content=\"1280\" \/>\n\t<meta property=\"og:image:height\" content=\"640\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"News Room\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"News Room\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"6 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/ifintechworld.com\/?p=33478#article\",\"isPartOf\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=33478\"},\"author\":{\"name\":\"News Room\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61\"},\"headline\":\"Japan Confronts an Inflation Sea Change. What That Means for Investors.\",\"datePublished\":\"2023-07-10T05:10:43+00:00\",\"dateModified\":\"2023-07-10T05:10:45+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=33478\"},\"wordCount\":1145,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/ifintechworld.com\/#organization\"},\"keywords\":[\"Featured\"],\"articleSection\":[\"Markets\"],\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/ifintechworld.com\/?p=33478#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/ifintechworld.com\/?p=33478\",\"url\":\"https:\/\/ifintechworld.com\/?p=33478\",\"name\":\"Japan Confronts an Inflation Sea Change. What That Means for Investors. | iFintechWorld\",\"isPartOf\":{\"@id\":\"https:\/\/ifintechworld.com\/#website\"},\"datePublished\":\"2023-07-10T05:10:43+00:00\",\"dateModified\":\"2023-07-10T05:10:45+00:00\",\"description\":\"After battling persistent deflation for three decades, Japan is now bracing for a different kind of fight: inflation.\u00a0The coming sea change has big\",\"breadcrumb\":{\"@id\":\"https:\/\/ifintechworld.com\/?p=33478#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/ifintechworld.com\/?p=33478\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/ifintechworld.com\/?p=33478#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/ifintechworld.com\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Japan Confronts an Inflation Sea Change. What That Means for Investors.\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/ifintechworld.com\/#website\",\"url\":\"https:\/\/ifintechworld.com\/\",\"name\":\"Repay Down\",\"description\":\"Latest Personal Finance News, Tips and Updates\",\"publisher\":{\"@id\":\"https:\/\/ifintechworld.com\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/ifintechworld.com\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/ifintechworld.com\/#organization\",\"name\":\"Repay Down\",\"url\":\"https:\/\/ifintechworld.com\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png\",\"contentUrl\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png\",\"width\":558,\"height\":90,\"caption\":\"Repay Down\"},\"image\":{\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/\"}},{\"@type\":\"Person\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61\",\"name\":\"News Room\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/ifintechworld.com\/#\/schema\/person\/image\/\",\"url\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png\",\"contentUrl\":\"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png\",\"caption\":\"News Room\"},\"sameAs\":[\"https:\/\/ifintechworld.com\"],\"url\":\"https:\/\/ifintechworld.com\/?author=1\"}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"Japan Confronts an Inflation Sea Change. What That Means for Investors. | iFintechWorld","description":"After battling persistent deflation for three decades, Japan is now bracing for a different kind of fight: inflation.\u00a0The coming sea change has big","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/ifintechworld.com\/?p=33478","og_locale":"en_US","og_type":"article","og_title":"Japan Confronts an Inflation Sea Change. What That Means for Investors. | iFintechWorld","og_description":"After battling persistent deflation for three decades, Japan is now bracing for a different kind of fight: inflation.\u00a0The coming sea change has big","og_url":"https:\/\/ifintechworld.com\/?p=33478","og_site_name":"iFintechWorld","article_published_time":"2023-07-10T05:10:43+00:00","article_modified_time":"2023-07-10T05:10:45+00:00","og_image":[{"width":1280,"height":640,"url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/07\/1688965844_social.jpeg","type":"image\/jpeg"}],"author":"News Room","twitter_card":"summary_large_image","twitter_misc":{"Written by":"News Room","Est. reading time":"6 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/ifintechworld.com\/?p=33478#article","isPartOf":{"@id":"https:\/\/ifintechworld.com\/?p=33478"},"author":{"name":"News Room","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61"},"headline":"Japan Confronts an Inflation Sea Change. What That Means for Investors.","datePublished":"2023-07-10T05:10:43+00:00","dateModified":"2023-07-10T05:10:45+00:00","mainEntityOfPage":{"@id":"https:\/\/ifintechworld.com\/?p=33478"},"wordCount":1145,"commentCount":0,"publisher":{"@id":"https:\/\/ifintechworld.com\/#organization"},"keywords":["Featured"],"articleSection":["Markets"],"inLanguage":"en-US","potentialAction":[{"@type":"CommentAction","name":"Comment","target":["https:\/\/ifintechworld.com\/?p=33478#respond"]}]},{"@type":"WebPage","@id":"https:\/\/ifintechworld.com\/?p=33478","url":"https:\/\/ifintechworld.com\/?p=33478","name":"Japan Confronts an Inflation Sea Change. What That Means for Investors. | iFintechWorld","isPartOf":{"@id":"https:\/\/ifintechworld.com\/#website"},"datePublished":"2023-07-10T05:10:43+00:00","dateModified":"2023-07-10T05:10:45+00:00","description":"After battling persistent deflation for three decades, Japan is now bracing for a different kind of fight: inflation.\u00a0The coming sea change has big","breadcrumb":{"@id":"https:\/\/ifintechworld.com\/?p=33478#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/ifintechworld.com\/?p=33478"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/ifintechworld.com\/?p=33478#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/ifintechworld.com\/"},{"@type":"ListItem","position":2,"name":"Japan Confronts an Inflation Sea Change. What That Means for Investors."}]},{"@type":"WebSite","@id":"https:\/\/ifintechworld.com\/#website","url":"https:\/\/ifintechworld.com\/","name":"Repay Down","description":"Latest Personal Finance News, Tips and Updates","publisher":{"@id":"https:\/\/ifintechworld.com\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/ifintechworld.com\/?s={search_term_string}"},"query-input":"required name=search_term_string"}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/ifintechworld.com\/#organization","name":"Repay Down","url":"https:\/\/ifintechworld.com\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/","url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png","contentUrl":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/rep-logo-dark.png","width":558,"height":90,"caption":"Repay Down"},"image":{"@id":"https:\/\/ifintechworld.com\/#\/schema\/logo\/image\/"}},{"@type":"Person","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/6224724fd4116361255b179dc5c70b61","name":"News Room","image":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/ifintechworld.com\/#\/schema\/person\/image\/","url":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png","contentUrl":"https:\/\/ifintechworld.com\/wp-content\/uploads\/2023\/04\/avatar_user_1_1682606986-96x96.png","caption":"News Room"},"sameAs":["https:\/\/ifintechworld.com"],"url":"https:\/\/ifintechworld.com\/?author=1"}]}},"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/33478","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=33478"}],"version-history":[{"count":1,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/33478\/revisions"}],"predecessor-version":[{"id":33480,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/posts\/33478\/revisions\/33480"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=\/wp\/v2\/media\/33479"}],"wp:attachment":[{"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=33478"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=33478"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ifintechworld.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=33478"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}