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Expect Inflation To Surge In Japan, But Fall In The UK

The current global surge in inflation may have started in the U.S. but it won’t end there, new research shows. It’s likely to show up in other places too.

“Recent currency movements imply that inflation will accelerate in Japan,” states a recent report from economics analytics company HCWE & Co.

The recent surge in U.S inflation to 5.4% in June was likely a shock to some people, but it shouldn’t have been. That’s because the value of the dollar has been sinking.

“History shows that, over long periods of time, inflation is directly proportionate to currency depreciation,” the HCWE report states.

The key is that the currency sinks first, then we get the inflation, HCWE says.

And that’s why it is key to projecting future inflation overseas.

Bad Inflation News Ahead for Japan

Based on the performance of the British pound, the euro, the Swiss franc and the Japanese yen over the last year or so, HCWE has some good news and bad news for the various economies behind these currencies.The good news comes for the U.K. which will likely see its inflation rate fall sharply relative to U.S. inflation. That’s because its currency, the British pound has rallied greatly this past year. The euro will also likely see a modest drop in inflation because its currency has rallied a little.

In Switzerland, HCWE sees “roughly” no changes to inflation because the currency has barely moved.

However, the really bad news is for Japan. Its currency sank precipitously over the last six months and so HCWE says inflation is likely set to rise relative to U.S. inflation.

Typically, rising inflation is not seen as a good thing for any economy and if not dealt with swiftly and firmly, it is bad for stock investors too. That means investors in Japanese stocks should keep a close eye on what’s happening at the Bank of Japan and what its likely response will be to any uptick in inflation.

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