Pessimists believe Japan’s recent exit from years of deflation has occurred mainly because of a collapse in the yen’s value last year, a result of a massive monetary stimulus not unlike the U.S. Federal Reserve’s. That decline pushed up the cost of fuel and other imports. As the yen has regained some lost ground this year, this pressure on prices has abated.
This is a common trap. People think of inflation as a price phenomenon and not as a monetary phenomenon. In that case: “a stable yen has put a break on growth in import prices”. But later: “the yen collapsed as a result of a massive monetary stimulus”.
So the correct line of thought is clear: Monetary stimulus caused inflation expectations to rise which caused the exchange rate devaluation (the “collapse” of the yen´s value).
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