Economy boost measures on target as Japan shakes off deflation

Japanese prime minister Shinzo Abe gained a huge boost for his “shock and awe” medicine today as the world’s third- biggest economy moved out of deflation territory for the first time since October.

Abe and new central bank governor Haruhiko Kuroda are in the throes of boosting growth through the “three arrows” of a massive programme of money printing, public spending, and structural reforms.

The Bank of Japan has been battling deflation for two decades but was bolstered in efforts to hit a new 2% inflation target within two years as the Consumer Prices Index moved out of negative territory for the first time in seven months in May. Prices are flat year on year, official figures showed.

Japan was also lifted by a 2% rise in industrial production in May, the fourth monthly increase in a row. But Japanese shares have dipped after climbing 50% in the first few months of the year. Markets doubt whether Abe can deliver on the final part of his programme, deregulating industry and loosening labour laws. 

CMC Markets analyst Michael Hewson said: “The stimulative effect of the new government’s ‘Abenomics’ is continuing to  have the desired effect, helping boost economic activity, which  is even more important given some scepticism of the ‘third arrow’ of Abe’s reform programme.”