Japan Re-Inflates for Seventh Consecutive Month, but BOJ Price Target Remains Elusive

Japanese inflation ticked up again in July, with core prices rising at a steady pace – signs that the world’s third-largest economy was making progress.

Inflationary Pressures Slowly Building

The national consumer price index (CPI) of goods and services rose at an annualized 0.4% in July, the Statistics Bureau reported Friday. That was unchanged from the prior month.

Consumer prices excluding fresh food – a widely-watched barometer of core inflation – rose 0.5% year-over-year. That was higher than the June rate of 0.4%.

Core inflation in Tokyo also rose 0.4% year-over-year, official data showed.

Both the CPI and core inflation rates registered their seventh consecutive month of gains. This time last year, deflation had a stranglehold on the Japanese economy.

BOJ Target Remains Elusive

For all the talk of inflation, actual price growth remains well below the Bank of Japan’s 2% target. Last month, the BOJ postponed its inflation target for the sixth time even while boosting its outlook on GDP growth. The downgraded inflation outlook has raised more questions about the sustainability of the Bank’s massive stimulus program. According to analysts, the delay all but assures that quantitative easing will continue probably beyond 2020.

After years of tepid progress, the BOJ last September shifted from base-money targeting to yield-curve targeting. The efforts appear to be working, with Japan now enjoying its longest run of uninterrupted growth in more than a decade. The economy’s annual second-quarter expansion of 4% smashed estimates and boosted confidence in the recovery.

Yen Debasement a Possible Tailwind for Cryptocurrencies

Japan’s massive stimulus effort won’t end anytime soon, leaving the yen vulnerable to further debasement. As a regional haven currency, the yen has benefited lately from geopolitical risks. However, the currency’s debasement has been significant over the past five years. This leaves plenty of opportunity for cryptocurrencies to expand in both size and scope.

The following chart illustrates the extent of the yen’s massive devaluation, based on the USD/JPY exchange rate:

Japan is already the center of major cryptocurrency investing after it became the first Asian nation to legalize Bitcoin as a payment method. With added regulatory certainty, savvy Japanese investors will continue to target Bitcoin and other digital currencies.

The global cryptocurrency market is valued at $151 billion, according to CoinMarketCap. There are now 11 cryptocurrencies worth $1 billion or more.

According to various sources, hundreds of thousands of Japanese retail outlets could adopt Bitcoin-as-a-payment this year. Additionally, Japan has eliminated the 8% consumption tax on Bitcoin. This was later confirmed by a Deloitte report on Japan’s tax reform proposals.

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi