Thursday, June 25, 2009

Catching Up With Japan

No doubt can possibly remain, Japan is in the midst of deflation. The graph on the left tracks the year over year change in Japanese CPI. The price index is at the same level it was in August of 1993.

The graph on the right tracks Japan's current account position. As an exporting nation, Japan typically holds a current account surplus. This supply of foreign currency (i.e. US dollars) provides the fodder for the purchase of foreign assets. This is a volatile series, but the trend is clear: slowing global economies are decreasing their purchases of Japanese products. Perhaps this is why prices are falling in Japan.

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