🛠 Black swan toolkit

What’s going on here?

Data out on Friday showed that Japan’s inflation perked up last month.

What does this mean?

Inflation’s often seen as the bad boy of economics, but Japan’s long been pining for that rugged toughie. After all, inflation’s not a total ne’er-do-well: too much can mean you wind up like the West right now, sure, but too little and you risk deflation – an even nastier foe. So April’s data was encouraging: consumer prices picked up by 3.4% from the same time last year, with food prices leading the charge. And that jump would have been even steeper if the government hadn’t stepped in to offset surging gas and electricity costs. What’s more, rising prices haven’t had Japanese households and businesses closing their wallets: data out last week showed that resilient spending last quarter helped drag the nation out of the technical recession it had been languishing in.

Why should I care?

The bigger picture: Don’t bank on big changes.
The Bank of Japan (BOJ) has been snapping up government bonds for years to trim borrowing costs and kickstart growth. And with this inflation data in, some economists are hoping that the BOJ might bump up inflation forecasts and finally shake its policy up a bit. But let’s not uncork the sake just yet. See, it’s the aftershocks of the pandemic, not the BOJ’s strategic plays, that have nudged inflation upwards – and with exports and manufacturing still feeble, the central bank's unlikely to jeopardize the recovery with a drastic about-face.

For markets: Japan’s jolt.

This news means Japanese stocks are having a bit of a moment, with the country’s Topix index hitting a 33-year high last week. And that’s not surprising: the economy’s dodging stagflation, valuations are in good shape, and growth’s finally back in town. And Warren Buffett’s much-publicized – and very influential – infatuation with Japan can’t have hurt either.

What’s going on here?

Deere, the leading farm equipment manufacturer, reported a bumper crop of profit last Friday.

What does this mean?

Last year’s agricultural shortages saw farmers rake in record crop prices, and they took that golden opportunity to upgrade their equipment. And even now, with crop prices dropping and Deere’s products getting Deer-er, demand’s still looking fresh. The appetite for everything from new tractors to spare parts helped the firm smash through profit expectations last quarter – marking a 36% increase from the same time the year before, and notching up Deere’s best-ever second-quarter results. Plus, with the orders still pouring in, the firm upped its profit forecast for the remainder of the year – and investors, betting on a bumper harvest, sent Deere’s stock skyward.

Why should I care?

Zooming in: The plow and the stars.

Deere’s precision agriculture segment – which uses sensors and data analytics to boost crop yields – emerged as the real star last quarter. Thing is, many farms are tucked away in remote areas, where good ol’ network connectivity is as rare as a hen’s tooth. And that’s a problem when your offerings include high-tech autonomous machines. Now, though, the firm’s turning to the heavens for a solution, betting on satellite communications to plug the gap where signal’s sparse. Deere’s already trialing the tech, and if it goes well, analysts think it’ll boost the firm’s overall appeal – while opening some new software-service revenue streams.

The bigger picture: Hanging on for Deere life.

Deere’s an economic bellwether, meaning that its performance offers a glimpse into the financial health of the US in general. And these results bode pretty well for the world’s biggest economy: after all, the firm’s juicy profit hardly suggests that the country’s flirting with disaster. And while an easy escape from high inflation might seem far-fetched – history says that a recession’s the usual antidote – a growing number of experts do think that a softer landing could materialize.