Is yen strength good for Japan?
- Yen strength has been agitating some commentators. However a stronger yen does not create deflation, except for commodity import prices – other import prices are likely to remain unchanged (pricing to market strategies).
- Japan does not have deflation expectations for prices – this is a myth (consumer inflation expectations are 2.5% to 3%). The problem is an expectation of real income deflation. However, lower commodity prices may boost real incomes for some groups in society, including the elderly.
- The ECB's Draghi was echoing the Fed's Yellen in warning of global economic uncertainty. The question is, is the world outlook really any more uncertain than normal? There is structural change in the economy, to be sure, but our data shows upside risks to growth, and growth data is nearly always revised higher too.
- There is limited interest on the data calendar, although the US wholesale inventory numbers may be worth a glance. Inventory is seen as a negative contribution to the first quarter – the extent of that downwards pressure determines much about the initial growth profile in the US this year.