Japan having its share of Inflation problems as well

I have been with keen interest developments coming out of both China and Great Britain overnight and early this AM in regards to their problems with inflation pressures that are becoming of great concern. There was also news concerning Japan along these lines as well.

The Asian edition of the Wall Street Journal carried the following story detailing the problems in the Land of the Rising Sun.

I do not think that it is any coincidence that the inflation issues surfacing combined with the S&P downgrade of its debt to 'AA-' are contributing to downward pressure on the Yen.

At the same time, interest rates in Japan remain woefully low and look to be going nowhere any time soon. The result is the same as it is across many nations in the world right now - savers are getting NEGATIVE rate of returns on their money.

At the risk of beating a dead horse  - this is the environment in which gold thrives. It is also the reason that gold priced in terms of the Yen is rising and is not far from its record high.

Here is the story from the Journal as reported by Dow Jones:

WSJA(2/15) Heard On The Street: Japan Faces The Risk Of (Bad) Inflation

(From THE WALL STREET JOURNAL ASIA)
   By James Simms

  Even as Tokyo has failed to whip chronic deflation, Japan's economy could be
faced with an unexpected hazard: inflation.

  Rising prices for commodities and energy could hurt private consumption if
Japanese shoppers see their yen aren't going as far at the cash register.
Already-sluggish wage growth would compound that.

  Gross domestic product fell an annualized 1.1% in the fourth quarter compared
with the previous period. Household consumption, as expected, dropped 0.8%. The
pace of outlays for consumer durable goods decreased to a 3.1% rise, from the
previous quarter's 12% increase, after the government scaled back breaks for
fuel-efficient car purchases.

  Along with the main drivers of exports and capital expenditures, consumption
is expected to improve this year and help growth. But worries are increasing
that rising food and fuel prices could crimp household spending.

  Credit Suisse economist Takashi Shiono estimates that if crude-oil and food
prices remain at January's levels through June, real household consumption
would be cut by 0.5%.

  Underscoring the fragility of that spending and excluding sectors with
government support, outlays have dropped or remained flat on goods, such as
clothing, for the past three quarters, while spending for services has dropped
for four.

  Now price pressures are rising. The Bank of Japan said last week that the
Corporate Goods Price Index for January had its largest jump since November
2008 and its third consecutive month of increases. That 1.6% year-to-year rise
was led by increases in petroleum, iron-ore and corn prices. Inflation
triggered by firm demand, not rising input prices, is the kind of inflation
that Tokyo needs.


  (END) Dow Jones Newswires

  02-15-11 0030ET

  Copyright (c) 2011 Dow Jones & Company, Inc.