Hyperinflation … in Japan?

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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.

Read MoreAnalysts still see more BOJ stimulus coming

Not everyone is as alarmed, however. "Japanese consumers have a tendency to imagine prices will rise by a bigger margin than the data indicate," said BNP Paribas senior economist Azusa Kato. And according to the BOJ's own January survey, the median expectation for price rises this year is 3 percent, she pointed out.

Elusive inflation

Consumers may be worried that prices will jump, but in fact inflation is barely rising.

In December, core consumer price inflation (CPI), which does not include food, rose just 0.5 percent on-year including the effect of the April 2014 consumption tax hike which tipped the economy into technical recession for six months.

In January, the BOJ cut its inflation forecast for the fiscal year starting in April 2015 to 1.0 percent, half its 2 percent target, citing the around 50 percent decline in oil prices over the past six months for the updated forecast.

Officially, the central bank expects to exceed its 2 percent forecast in fiscal 2016, raising its core inflation forecast to 2.2 percent from 2.1 percent.

Economists see much lower inflation. Toward the end of 2015, Credit Suisse expects CPI at around 0.2 percent to 0.3 percent, and BNP Paribas forecasts 0.3 percent.

Faced with the hard numbers, the central bank may shelve the 2015 deadline for its 2 percent target. BOJ board members will begin debating whether the target date should be put further in the future, or even fudged ahead of April's monetary policy meeting, according to a Sankei newspaper report on Thursday.

Japan will release the latest January CPI figures Friday.