For many years, the foreign investor’s biggest gripe with Japan related to deflation. The economy’s stubborn failure to shake the condition off came to symbolise everything wrong with the place: inept policymaking, ultra-conservative consumers and a frustrating inability to unlock the vast potential of corporate Japan.

Inflation, when it eventually returned nine months ago, was going to change all that: consumers and corporations would no longer postpone their buying decisions on the expectation of falling prices, retailers and manufacturers could confidently start raising prices again, and the stock market would re-emerge as a forum of hope and growth.

But that argument depended rather heavily on the re-emergence of “good” inflation. And while today’s CPI figures may appear to herald the long-awaited return of rising prices, the great disappointment among investors is that they fairly certainly represent “bad” inflation.

The price rises have emerged as pure cost-push inflation from abroad. The overseas producers of oil, iron ore and wheat are the ones principally reaping the benefits, while Japan Inc’s great struggle is to see how much of those price rises can be passed on to customers without squeezing consumers to busting point. Japan imports almost all its energy, almost all its metals and 40 per cent of its food. Those are the prices that are being forced northwards, rather than any demand-pull or sudden ability of Japan Inc to shift more flat-screen televisions, digital cameras and the other goods it makes so well.

Add into the mix the recent drop in exports and the near total freeze on wage increases in Japan, and the return to inflation starts to look even uglier.

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