BOJ believes deflation will end by start of 2006

Kazumasa Iwata, deputy governor of the Bank of Japan, said the central bank believed that year on year changes in consumer prices would be zero or rise slightly by the year end for the first time in seven years. “ As a trend, year on year rises in CPI will move higher”. This is big news in Japan. Deflation has been a staple in its economy since the bursting of the asset bubble in the early 1990’s. Policy makers have struggled to find a solution to deflation and seem confident that the end of this cycle is near. After Mr Iwata’s testimony, the banks policy board released its minutes in which it was revealed that the entire 9 member board felt confident in this assessment. Currently the CB is committed to a so called quantitative easing (flooding the market with excess liguidity), but sees in the near future an end to this policy also. All in all good news for Japan.