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Japanese CPI growth hits 23-year high

Japanese CPI growth hits 23-year high

The make up of consumer price index (CPI) data in many countries is not necessarily closely related to the cost of living. For example, in the US, ‘everyday’ consumer expenditure on food and energy has less than a 25 per cent weighting on their CPI, and is excluded altogether from a ‘core’ inflation.

The impact from the cost of basics such as food and energy has broad implications for consumer discretionary spending. And unless normal wages increase at a faster rate than the cost of basics, wallets are thinner.

To this end, consumer prices in Japan grew by 3.2 per cent in April from a year earlier, their biggest increase since 1991. The sales tax increase to 8 per cent from 5 per cent was largely to blame.

However, Japanese real wages are now falling due to stagnant wages. In the last two years, the Japanese yen has declined around 25 per cent from 78 to 102 against the US dollar, and this has coincided with the Nikkei 225 jumping from 8,500 points to the current 14,700 points (+73 per cent).

We note Japan has a public sector debt-to-GDP ratio exceeding 200 per cent, a fiscal deficit which is running at 10 per cent of its GDP and appalling demographic ramifications.

It does not seem logical to us to invest in Japanese 10-year bonds at the current yield of 0.58 per cent.


Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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  1. xiao fang xu

    “The BOJ in the end will completely write off the government debt. In the end it will not have cost them anything as it will have been acquired with created money. After all BOJ is part of government. This is true magic.”

    MICHAEL SHAPIRO — it is magic — black magic and japanese people will find
    that their savings and retirement are become worthless.

  2. Peter Murphy

    Hi David,

    Thanks for the update – I have been watching with interest for a while now how the Abenomics program will play out. Given the dynamics at play it is very hard to a positive ending to this story and indeed it would appear that the only way that the government ‘remains solvent’ for want of a better description is the current 0.6% 10 year bond rate which is clearly mismatched with the latest inflation reading. I am not sure will happen when the bondholder start to believe that inflation has arrived.

    • Michael Shapiro

      Stay tuned for the second act in Abenomics experiment. The BOJ in the end will completely write off the government debt. In the end it will not have cost them anything as it will have been acquired with created money. After all BOJ is part of government. This is true magic.

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