It’s funny how things happen. For years Japan was in disarray. Deflation, high unemployment, the economy of the rising sun seemed to be suffering from permanent sunset. And yet, despite the woe from the world’s number two economy, the global economy did all right.

Now at last things are changing. It would appear that the beast known as deflation has finally been slain. The latest stats reveal a 0.6% rise in core prices over the year to May, while unemployment at 4% is at a seven year low, and the ratio of vacancies to job seekers is the highest since 1992.

And yet, recovering Japan is a part of the problem we have seen over the last six weeks. For, with the outlook improving, the Bank of Japan is expected to start hiking rates soon.

This is a particular problem because of what’s called the carry trade. This is where people borrow from Japan at next to nothing interest, and lend abroad at a much higher rate. Some believe this practice is behind the ever growing level of credit that is available, and they fear that higher interest in Japan will lead to tougher mortgage lending criteria, with a possible fall in house prices across the Anglo Saxon world.

© Investment & Business News 2013