Why Inflation Could Be Good News for Japan | Trumponomics

Japan’s economy is undergoing a significant transition as it emerges from three decades of stagnation into a new era of inflation and rising interest rates. The yen’s sharp depreciation, reaching multi-decade lows, stems from persistent interest rate differentials and structural forces, including corporate investment abroad and domestic labor shortages. While Prime Minister Sanae Takaichi’s pro-stimulus fiscal policy aims to rebuild domestic supply capacity, it creates tension with the Bank of Japan’s monetary tightening. U.S. Treasury Secretary Scott Besant’s recent intervention to shore up the currency highlights the global sensitivity to these shifts, particularly regarding the impact on U.S. Treasury bond yields. As Japan moves toward a more normal economic regime, the challenge lies in managing these structural adjustments without triggering volatility in international financial markets or disrupting the global carry trade.