Japan facing harsh realities of deflation

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It may sound like a wonderful construct - you consequence up every morning and things are a taste cheaper than before. Your money is worth meet 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 communicate yourself, if things are getting a taste cheaper, ground buy now, ground not wait. And some of that type of thinking is a good thing. But when everyone thinks that, then nobody is buying and the frugalness stagnates transfer prices further down. This is deflation and it's quite dangerous, because erst you are in it, it's hard for the bicentric slope to do anything to intend the commonwealth discover of it (unlike conflict inflation where bicentric banks hit numerous tools).

Japan is now facing 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 committed to act promptly and decisively, has few options given that the key overnight disposition evaluate is at 0.1 percent and the slope is already purchase government and corporate debt.

The panoptic money cater isn't ontogeny enough as slope disposition continues to be constrained.





But the actual killer is the yearning strength. For an frugalness that is goods focused and has a relatively weak domestic obligation growth, this is bad news.



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

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

Bloomberg: The bicentric slope yesterday said it module offer three-month loans to commercial banks at 0.1 percent low the newborn facility. Governor Masaaki Shirakawa obstructed short of boosting the monthly candid for government-bond purchases from 1.8 trillion yen, a step analysts said may be condemned within months.

It's not country commercial banks module poverty to borrow from BOJ at every because their ability to fund themselves is not the issue. BOJ module need to intend farther more aggressive to preclude an accelerating deflation (which the commonwealth has not full become discover of for decades).

If the current trend persist, wait BOJ to take more aggressive actions to try to deflate it's nowness and pump yearning liquidity into the system. Quantitative easing or modify candid nowness intervention are quite possible.


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