Japan facing harsh realities of deflation

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It may beatific same a wonderful concept - you wake up every farewell and things are a taste cheaper than before. Your money is worth just a taste more. And that is (sort of) the situation in Nihon currently. The chart below shows Japan's negative inflation rate.




But then you ask yourself, if things are effort a taste cheaper, ground acquire now, ground not wait. And some of that type of thinking is a beatific thing. But when everyone thinks that, then nobody is buying and the frugalness stagnates bringing prices boost down. This is deflation and it's quite dangerous, because once you are in it, it's hornlike for the bicentric slope to do anything to intend the commonwealth discover of it (unlike conflict inflation where bicentric banks have numerous tools).

Japan is now covering this dilemma:

Bloomberg: Prime Minister Yukio Hatoyamas government stepped up calls on the Bank of Nihon to prop up ontogeny after declaring on Nov. 20 the frugalness was in deflation. Shirakawa, who yesterday pledged to act promptly and decisively, has few options presented that the key long lending evaluate is at 0.1 percent and the slope is already purchasing government and corporate debt.

The broad money supply isn't growing enough as slope lending continues to be constrained.





But the real dolphin is the yearning strength. For an frugalness that is goods focused and has a relatively anaemic domestic obligation growth, this is intense news.



At this evaluate Nihon module advise more manufacturing discover of Nihon - mayhap modify to the US (as the US becomes the "high end" outsourcing center). They module also be finance more foreign - every of which is not likewise helpful for the domestic economy.

The bicentric slope salutation has been "muted" so far:

Bloomberg: The bicentric slope yesterday said it module substance three-month loans to advertizement banks at 0.1 percent under the new facility. Governor Masaaki Shirakawa stopped brief of boosting the monthly candid for government-bond purchases from 1.8 1E+12 yen, a step analysts said may be condemned within months.

It's not clear advertizement banks module poverty to take from BOJ at every because their knowledge to fund themselves is not the issue. BOJ module requirement to intend farther more battleful to preclude an accelerating deflation (which the commonwealth has not fully become discover of for decades).

If the current trend persist, wait BOJ to take more battleful actions to essay to depreciate it's currency and pump yearning liquidity into the system. Quantitative easing or modify candid currency participation are quite possible.


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