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The Complicated Rise of Japan

Today Yen reached 160 level against US dollar , a level last witnessed in January 1990. The importance of this level comes from the perspective that it might result in sharper rise in inflation in coming months as majority of energy products such as crude oil and natural gas are imported. 

The timing of Bank of Japan and government response is crucial as the rate hike cycle has officially begun and last week they also removed the official wording that was related to specific amount of bond buying. Any upside risk in inflation would put pressure to increase the rates faster than currently anticipated as Fed cut also might delayed. 

This environment does benefit the FPI and FDI inflows as the projects and related costs get cheaper. And in recent quarters both flows have reached to previous highs. 

Give the momentum of increase in domestic capital expenditure and wages there is higher certainty of the country increasing its market share globally in future. But given the risk from currency and other financial aspects that here might be some volatile outcomes as most of these changes are being witnessed after the gap of 30-35 years.


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