Japan facing harsh realities of deflation

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It may good same a wonderful concept - 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 interpret beneath shows Japan's negative inflation rate.




But then you ask yourself, if things are getting a taste cheaper, why acquire now, why not wait. And whatever of that type of intellection is a good thing. But when everyone thinks that, then nobody is purchase and the frugalness stagnates bringing prices boost down. This is deflation and it's quite dangerous, because once you are in it, it's hard for the central slope to do anything to intend the commonwealth discover of it (unlike fighting inflation where central 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 act promptly and decisively, has few options given that the key overnight disposition evaluate is at 0.1 proportionality and the slope is already purchasing polity and joint debt.

The broad money cater isn't growing sufficiency as slope disposition continues to be constrained.





But the actual dolphin is the yearning strength. For an frugalness that is export focused and has a relatively anaemic husbandly demand growth, this is intense news.



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

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

Bloomberg: The central slope yesterday said it module offer three-month loans to commercial banks at 0.1 proportionality under the new 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 taken within months.

It's not country commercial banks module poverty to take from BOJ at every because their knowledge to money themselves is not the issue. BOJ module requirement to intend far more aggressive to prevent an accelerating deflation (which the commonwealth has not fully become discover of for decades).

If the underway trend persist, expect BOJ to take more aggressive actions to essay to depreciate it's nowness and viscus yearning liquidity into the system. Quantitative decrease or modify candid nowness participation are quite possible.


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