The return of inflation has been welcomed by many – although not by Japanese consumers – as an early success for “Abenomics”. In reality there is little behind the increases in the CPI other than the pass through of yen weakness. Based on our forecasts for global commodity prices and the Japanese currency, import price inflation should start falling again soon. However, it may still take a few more months before the full impact of past changes become visible. We estimate that the weak yen will lift CPI inflation to 1.0-1.5% by the end of the year, from 0.7% in July.
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