The expectation that the weakening of the yen will lead to inflation of prices across Japan is probably wrong. This is because of the declining oil prices; since last June, crude oil prices have dropped by more than 50 percent. The economic policy of the Prime Minister Abe and the mandate of the Bank of Japan are to bring to an end the two decades deflation of the Yen. However, their efforts are yet to bear fruits. As of February this year, the inflation rate of the Yen was close to zero.
The increase of the consumption tax from 5 to 8 percent in April 2014 lend to the contraction of household spending by 2.9 percent. The depreciation of the Yen against the US dollar by about 30 percent, coupled with the increase in oil prices by 8 percent lend to inflation of prices by about 0.5 percent, in the second half of 2013.
Since October 2014, when the BOJ increased the quantitative easing program, the Yen has depreciated by about 10 percent. Having failed in its two-year target, meant to reduce inflation to 2 percent by this April, many analysts are expecting the BOJ to further ease the monetary policy and extend its goals.
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