To most consumers, the idea of falling prices would be heartily welcome, but economists worry that deflation in an economy can stifle domestic demand which is the backbone of most national economies. In the West, in my opinion, this fear is overplayed since consumers, in general, like instant satisfaction and would rather by goods then and there (even on credit) than delay a purchase to save a bit of money. In Japan, this fear does have a foundation because of the make-up of Japanese consumers. Deflation has been blamed for more than 20 years of relative economic stagnation in Japan and securing, low stable inflation has been a key economic target of the Abe government.
Inflation in Japan slipped for a fifth consecutive month in July, and weakened by 0.5% year-on-year and by 0.4% over the June figure. The annual decline is the largest seen for three years.
The task of inducing inflation into the economy has been made more difficult because of the Yen’s reputation as a safe haven currency. During what has been a turbulent year in terms of oil prices, Chinese stock market jitters and the uncertainty following Brexit, the Yen has strengthened considerably. This means that exports are dearer in importing markets, but also that Japanese imports (notably raw materials and fossil fuels) are less expensive as they are priced in US Dollars.
The inflation data is expected to place further pressure on the Bank of Japan for further stimulus measures despite the fact that the last raft, worth 28 trillion Yen (roughly $265 billion) was only announced in July. Such a move could be announced at the Bank’s next meeting to be held in September.