Abenomics Fails at Stoking Price Inflation, CPI down for 5 straight months

So far Abenomics has flagrantly failed to attain the “inflation” policy goals.

From Reuters:

Japan's core consumer prices fell 0.5 percent in March from a year earlier, down for a fifth straight month, government data showed on Friday, suggesting the Bank of Japan faces a tough task to achieve its 2 percent inflation target.

The fall in the core consumer price index, which includes oil products but excludes volatile prices of fresh fruit, vegetables and seafood, compared with a median market forecast for a 0.4 percent annual fall. It followed a 0.3 percent decline in the year to February.

This is why I think that the Japan’s stock markets as seen by her major equity benchmark, the Nikkei 225, continues to surge.  This in spite of growing signs of the supply side dislocations in the real economy brought about by price instability from Abenomics.

The Nikkei has been up by 4.5% based on yesterday’s close relative to last Friday. The rallying Nikkei comes amidst what appears as a short term consolidation phase in the Japanese yen. (chart from stockcharts.com)

Also rallying stock markets in Japan has had modest impact on the yields of 2 and 5 year JGBs which remains above the one year levels. (chart from Bloomberg)

In other words, bond markets have remained skeptical of the persistence of consumer price disinflation while her stock markets continues to trek higher, out of higher inflation expectations from BoJ's steroids.

Meanwhile gold priced in the yen has shown modest signs of rebound even when Japan's retail or physical gold market has been very robust. (chart from gold.org). So we have a mixed picture.

Of course, given the brazen initial failure of Abenomics to stoke price inflation, this means that BoJ’s Haruhiko Kuroda and PM Shinzo Abe may consider applying more of the same. They could even think of tripling the monetary base.

Yet further expanding the already reckless Abenomics is like playing with fire,  which will push Japan into a debt or currency crisis sooner than later, and where everyone will get singed.