Flash: Inflation does not ordinarily precede recovery - Nomura

FXstreet.com (Barcelona) - Richard Koo, Chief Economist at the Nomura Research Institute comments that long-term interest rates typically rise during an economic recovery.

However, in Japan’s case he is not seeing inflation concerns arise as a rebounding economy approaches full employment. Instead, he feels that the government and BOJ have decided to set an inflation target, generate inflation first, and hope that recovery follows. Further, he feels that this means the usual order of things has been reversed, with inflation coming first and recovery second. He writes, “In this case the increase in long-term rates in response to inflation concerns is likely to occur much sooner than it ordinarily would and may even take place before the recovery takes hold.” He finishes by noting that if the rise in long-term rates precedes the economic recovery, people who had planned to borrow money and invest it in anticipation of inflation could start to have second thoughts, throwing a damper on the nascent recovery.