Despite decades of deflation, Japanese consumers are increasingly worried runway inflation could trigger a vicious cycle of capital flight, an excessively weak yen and an interest-rate spike, warns a Credit Suisse report.
"The Bank of Japan's unprecedented monetary easing could be driving the upsurge in household inflation expectations," said Credit Suisse Japan economist Hiromichi Shirakawa in a note published on Friday. If that fear spreads to enough consumers, that vicious cycle could be on the cards, he said.
Since April 2013, the Bank of Japan gone for a "shock-and-awe" campaign of monetary-policy easing in a bid to drag the country out of two decades of deflation and achieve its 2 percent inflation target.
But one major side effect of its massive quantitative easing program, a sharply weaker yen, has pushed up some costs, including food prices, in the import dependent country.
"Many consumers fear prices will continue to rise following a wave of media reports about the weaker yen causing food companies to raise prices, as well as last April's consumption tax hike (from 5 to 8 percent)," said Cabinet Office spokesperson Yuto Miyakita.
Higher prices at the supermarket
In January, the proportion of Japanese households expecting prices to rise by more than 5 percent over the next year had risen for six straight months, to 30.4 percent, according to the latest Consumer Confidence Survey, published last week by the Cabinet Office.
The yen has weakened by 27 percent since April 2013, and by nearly 10 percent since the end of last October, when the BOJ eased for the second time.
In December, the cost of food jumped 3.9 percent on the previous year, according to government data.