Japan sees prices rise: time of crisis or of celebration?

Inflation in the Land of the Rising Sun seems to be settling in nicely. It seems strange to celebrate rising inflation, but in Japan, prices going up is like a breath of fresh air – after a decade of deflation. In all, consumer prices rose 0.6 percent in June, from 12 months ago. It was a similar story last month.

That’s hardly runaway inflation, but even so, it’s enough to make further rises in the interest rate likely to follow.

It’s an odd quirk of economics. For years, economists have been bemoaning the Japanese economic malaise, saying that if only the world’s second largest economy could shake off the demon of deflation, it could help propel the global economy forward.

Now this is happening, some are panicking. Why? Because it marks the end of the carry trade, where individuals and organisations borrow from Japan at rock bottom rates, and lend overseas. Some fear that as rates rise in Japan, we will see the end to cheap and easy credit, spelling doom for consumer spending, and house prices.

They are right to worry, and yet we shouldn’t all sell up just yet. [...]

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