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Flash: Yen devaluation boosts Japanese deflation prospects – RBS

FXstreet.com (Barcelona) - According to Analyst Junko Nishioka at RBS, “Accelerated yen depreciation is starting to boost prospects of Japan finally overcoming deflation, but is also beginning to raise concerns about an adverse impact on the economy via higher costs.”

Yen weakness and stock gains since November 2012 are clearly helping to lift economic activity. However, the latent risks deserve attention too. “We expect rising energy procurement costs to continue putting downward pressure on the overall economy.” Nishioka adds.

Yen depreciation is amplifying the cost of Japan's elevated reliance on fossil fuels amid the ongoing absence of a clear outlook for restarting nuclear power plants. In this report, we review the current situation for energy procurement and project import costs trends We also estimate the extent to which the potential corporate profits upside driven by the weaker-yen effect is capable of offsetting rising energy procurement costs, and assess impact on the overall economy.

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