I read that the Bank for International Settlements has recommended that the Bank of Japan raise the discount rate to head off inflation. But I must say that a price spike in the volatile energy sector hardly amounts to inflation. Consumer prices are actually deflating, only less than before. Also remember what happened the last time, or two, when the BOJ raised interest rates: Japan slipped back into a recession.
Since there is a glut of international financing, Japan's budget deficit is no problem. So back to inflation. Inflation derives from expectations of continual price increases as indicated either by producer or consumer prices. In Japan's case, I think consumer prices are important; therefore, one should look for several months of consecutive consumer price increases before selling Japanese government bonds. Since the Japanese economy is finally starting to show some steam, a jump in factory orders or in the production of computers or robotics merely indicates fulfilled demand -- not inflation.
If I were the BOJ, I would wait for three consecutive increases in consumer prices of at least 2 percent (year on year). That would start an upward march of interest rates that would flatten the long-term yield on government debt and rein in moderately low interest rates for some time.
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