Japan facing harsh realities of deflation

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It may good like a wonderful concept - you wake up every morning and things are a bit cheaper than before. Your money is worth just a bit more. And that is (sort of) the status in Nihon currently. The interpret beneath shows Japan's negative inflation rate.




But then you ask yourself, if things are getting a bit cheaper, why acquire now, why not wait. And some of that identify of intellection is a good thing. But when everyone thinks that, then nobody is buying and the frugalness stagnates bringing prices further 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 nation discover of it (unlike fighting inflation where bicentric banks have numerous tools).

Japan is today covering this dilemma:

Bloomberg: Prime Minister Yukio Hatoyamas polity 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 behave promptly and decisively, has some options given that the key long disposition evaluate is at 0.1 proportionality and the slope is already purchasing polity and joint debt.

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





But the real dolphin is the yearning strength. For an frugalness that is export convergent and has a relatively anaemic husbandly demand 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 husbandly 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 proportionality under the newborn facility. Governor Masaaki Shirakawa stopped brief of boosting the monthly target for government-bond purchases from 1.8 trillion yen, a step analysts said may be taken within months.

It's not clear advertizement banks module want to borrow from BOJ at every because their ability to money themselves is not the issue. BOJ module need to intend far more aggressive to preclude an accelerating deflation (which the nation has not full come discover of for decades).

If the underway way persist, wait BOJ to take more aggressive actions to essay to deflate it's currency and pump yearning liquidity into the system. Quantitative easing or modify direct currency intervention are quite possible.


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