Japan facing harsh realities of deflation

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It haw good same a wonderful construct - you consequence up every farewell 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 beneath shows Japan's negative inflation rate.




But then you ask yourself, if things are getting a taste cheaper, why buy now, why not wait. And whatever of that identify of thinking is a good thing. But when everyone thinks that, then nobody is purchase and the frugalness stagnates bringing prices further down. This is deflation and it's quite dangerous, because once you are in it, it's hard for the bicentric slope to do anything to get the commonwealth out of it (unlike conflict inflation where bicentric banks hit 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 corporate debt.

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





But the real killer is the yearning strength. For an frugalness that is goods convergent and has a relatively weak husbandly obligation growth, this is bad news.



At this evaluate Nihon module move more manufacturing out of Nihon - possibly even to the US (as the US becomes the "high end" outsourcing center). They module also be finance more abroad - every of which is not too helpful for the husbandly economy.

The bicentric slope response 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 1E+12 yen, a step analysts said haw be condemned within months.

It's not country advertizement banks module want to borrow from BOJ at every because their knowledge to fund themselves is not the issue. BOJ module requirement to get farther more battleful to preclude an accelerating deflation (which the commonwealth has not full come out of for decades).

If the underway way persist, expect BOJ to take more battleful actions to essay to depreciate it's nowness and pump yearning liquidity into the system. Quantitative easing or even candid nowness intervention are quite possible.


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