Japan’s economy is currently troubled as its consumer price index (CPI), a vital tool used in assessing inflation, has experienced a steady decline for twelve months in a row. This is also in reaction to the global inflation of food prices which has contributed to creating further depressive pressures for the country’s economy. Government data recently released revealed that CPI experienced a decline of 0.2% in July, another fall in twelve months. So far, the country’s economy has been a serious victim of the emergence of the pandemic. This decline however is less than the predicted drop which was 0.4%, as it is also lower than a previous fall of 0.5%. Although this is a positive outcome, it doesn’t completely assure economists of the recovery which they seek.
There are expectations for the inflation to be less intense than those experienced in Europe and the United States even as Japan extends its state of emergency to mid-September. The continuous rise of infections and cases have had a destabilizing effect on Japan’s economy. The emergence of the pandemic brought a reduction in spending power. This state of emergency extension will further weaken household expenses as individuals would become more cautious and spend less. Japan’s CPI includes oil but excludes the prices of fresh food. It is consistently experiencing a downward trend, which is a risky economic occurrence. The decline also offset the cellphone cuts recently implemented rendering it less potent and beneficial.
Japan’s CPI fall prompted a spike of 5.6% in wholesale prices, setting a record as the fastest yearly increase in thirteen years. However, with a reduction of decline percentage, economists are hopeful that the possibility of an economic recovery is in the offing. A continuous reduced decline would offer a form of balance to the weakened economy. Projections also reveal the possibility for economic activities to enter a phase of normalcy towards the end of this year. However, the option of delayed timing is also not eliminated as there is no certainty of the pace of economic recovery.
The country’s economy has undergone a tremendous rebound in the second quarter of this year after suffering a severe slump in the initial three months of the year. Such a recovery beat even the expectations of economic experts. It is an indication that public consumption and capital expenditure are increasing even in the face of the raging pandemic.
The Fall of CPI And The Effect on The Japanese Yen
The recent economic challenges faced by the country are presently reflecting in its currency’s performance on the international market. When placed against the American dollar, JPY is exhibiting signs of weakness. Losses however are limited and reduced on account of its status as a safe-haven currency. With the persistent rise of infections in Japan, there are more chances for a reduction in spending volumes which will be unhealthy for its economy. Judging by the futuristic outlook of the country’s economy, the rise in the strength of JPY would be attributed to market sentiments.