Count us surprised that so much has been made of the “improved” inflation readings recently published out of China. Earlier this week Chinese PPI surprised to the upside, coming in at -3.4% YoY vs estimates of -3.8% YoY and the previous month’s reading of -4.3% YoY, leading many market commentators to conclude that the internal dynamics underlying the Chinese state of affairs (i.e. excess capacity) are on the mend. We are of a slightly different view, that the troughing of Chinese PPI has more to do with yen strengthening as the JPY/CNY spot rate has fallen from 20 to 16 in a little under a year. In a strong yen world, Japan is the world’s deflation shock absorber and the reverse is also true. Given the ineffectiveness of the Japanese monetary policy to weaken the yen or even hold it steady, Japan has for the last 12 months once again taken on the role of the global deflation shock absorber. We may, however, be seeing and end to that, as we highlighted here a few days ago, and as high ranking Japanese officials have become more vocal about the level of the yen.