"Japan's deflation will turn into inflation. The problem is reaching the inflation target in 2 years"
-Shuichi Obata, senior economist at Nomura Securities Co.
A leading indicator of business conditions in the world's third largest economy soared to a six-year high in May, cementing Abenomics effectiveness, the Cabinet Office said Friday. Japan leading indicator of business cycle, which was designed to predict the direction of the economy, jumped to 110.5, beating expectations for 101.3 and higher from a revised 107.7 in the previous month. In addition to that, the coincident index, which measures the current economic situation, moved slightly up to 105.9 up from a revised figure of 105.1 in April. However, this measure tends to have a muted impact on markets as most of the components used in calculation are already published. Therefore, the index might have failed to push the Yen higher, due to the focus on the BoJ's pledge to reach 2% inflation target within two years.
Also Friday data showed that Japanese consumer inflation expectations were unchanged at 3% for a second quarter last month, another sign that the BoJ Governor Haruhiko Kuroda's reflationary drive may succeed. Consumers across the country expect prices to increase 3% over the next 12 months, the same as in March. However, the indicator does not include the result of a planned hike in the sales tax to 8% in April, up from the current 5%.
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