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Wednesday, March 13, 2013

The newly heralded Japanese premier is clearly a man on a mission. Seems he will settle for nothing less than watching the demon of deflation in Japan being run into the ground. And there are signs that he could well be on his way to success. The Economist reports that the largest retailer in Japan recently announced a pay-hike for around 54,000 of its employees. For some of them, this will be their first basic-salary hike in four years.

Clearly, this is big news for a country that hasn't seen the mercury on the price-meter rise for about 15 years now. However, the big question is whether the other firms will follow suit? And this is where the good news ends we believe. Most other firms are unlikely to take a leaf out of the retailers' book. At least until they see clear signs of growth returning and the economy improving.

But will a sustainable growth return to the land of rising sun? We are not that positive. The simple reason being that Japan is trying to achieve this by printing money. And if printing money leads to prosperity then Zimbabwe could have been the richest nation in the world. So Japan could well move from deflation to hyperinflation. But increase in real wealth looks a very difficult proposition to achieve.

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