In most of the world, concerns about inflation are gradually overriding fears of falling growth. But in Japan, which has lived with deflation for more than a decade, anxiety about rising prices, at least among professional economists, is muted.

Jonathan Allum of KBC Financial Products is almost euphoric. He compares Japan with the UK, where inflation has risen above the Bank of England’s 1-3 per cent target.

“In Japan, we’ve been under 1 per cent for years. If we are going to get into the 1-3 per cent sweet spot, then bring it on,” he says. “You can quibble about whether it is good or bad inflation,” he adds, referring to a view that so-called cost-push inflation from high oil and commodity prices is detrimental. “But [most] central bankers say good inflation is between 1 and 3 per cent, and bad is the other side of that band. That’s it.”

The average Japanese shopper, who has noticed a jump in food and petrol prices, does not see much good in rising prices. But if inflationary expectations set in, it could have a beneficial impact, some economists say. Core consumer prices for May, released on Thursday, are expected to show the rate rising well above 1 per cent, compared with 0.9 per cent in April. Almost all is due to energy and food. Stripped of these, so-called “core core inflation” is roughly flat.

Kenichi Kawasaki, economist at Lehman Brothers, does not share the view that foreign “cost-push inflation” is good. He calculates that Japan’s total energy bill rose from Y10,000bn in 2004 to Y20,000bn ($186bn) in 2007. This year, he expects rising oil prices to push it above Y30,000bn.

“If this was cost-push inflation from domestic factors, it would be better,” he says. “But this represents a loss of terms of trade for Japan. It is more like a tax.” By reducing consumer spend­ing power on other items, he reckons, it could even end up having a deflationary impact.

Mr Allum disagrees, saying wherever the initial push comes from, rising prices should feed through into second-order effects. “If it releases some of the futon money, great,” he says, referring to people’s tendency to move out of cash if they think prices are rising. “If it comes through in a bit of wage pressure, great.”

Richard Jerram, economist at Macquarie Research, says although imported inflation does depress demand and squeeze corporate profits, it can trigger a rebalancing of portfolios. This has “piqued foreign interest in Japan”, he says, going some way to explaining why, since its low in mid-March, the Nikkei index is up 17 per cent, while stock markets in the UK and the US are more or less flat.

The question of good and bad inflation aside, most analysts agree that Japan, which notched up annualised growth of 4 per cent in the first quarter, has weathered recent storms better than most advanced economies. Although some of the impressive first-quarter growth was due to the flattering effects of a leap year, most predict that Japan can sustain growth of about 1.5 per cent this year.

“Having hit such a headwind in terms of commodity prices and slowing exports, the data have been impressively calm,” says Mr Jerram. “There’s been a slowdown, but it hasn’t been worrying or brutal. The domestic economy is proving resilient in the face of domestic shocks.”

Mr Allum links Japan’s relatively solid performance back into the global inflation story. “It’s cost-push inflation if you look at it from a parochial level. But from a global perspective, it’s demand-pull inflation,” he says, referring to the appetite of developing countries such as China and India for oil and other commodities.

Export figures this week showed falls to the US and Europe, but continued ex­pansion to Asia and eastern Europe. According to Macquarie, the percentage of Japanese output owing to exports to non-Organisation for Economic Co-operation and Development countries has doubled from 5 to 10 per cent since 2000.

That will not insulate Japan entirely from problems in the US and Europe, says Mr Jerram, who expects the economy to slow for the next six months. But, he says: “Japan is now far more geared to the world’s fastest-growing economies.”

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