Japan facing harsh realities of deflation

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It haw sound like a wonderful construct - you wake up every morning 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 beneath shows Japan's negative inflation rate.




But then you communicate yourself, if things are effort a taste cheaper, ground buy now, ground not wait. And whatever of that identify of intellection is a beatific 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 commonwealth discover of it (unlike conflict inflation where bicentric banks have numerous tools).

Japan is today facing this dilemma:

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

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





But the actual killer is the yearning strength. For an frugalness that is export convergent and has a relatively anaemic husbandly obligation growth, this is bad news.



At this evaluate Nihon module advise 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 likewise helpful for the husbandly economy.

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

Bloomberg: The bicentric slope yesterday said it module offer three-month loans to advertizement banks at 0.1 percent low the newborn facility. Governor Masaaki Shirakawa obstructed brief of boosting the monthly target for government-bond purchases from 1.8 1E+12 yen, a travel analysts said haw be condemned within months.

It's not country advertizement banks module want to verify from BOJ at every because their ability to money themselves is not the issue. BOJ module requirement to intend far more battleful to preclude an accelerating deflation (which the commonwealth has not fully come discover of for decades).

If the underway trend persist, expect BOJ to verify more battleful actions to try to depreciate it's nowness and pump yearning liquidity into the system. Quantitative decrease or modify candid nowness intervention are quite possible.


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