Japan facing harsh realities of deflation

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It haw sound like a wonderful construct - you wake 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 below shows Japan's negative inflation rate.




But then you communicate yourself, if things are getting a taste cheaper, ground acquire now, ground 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 erst you are in it, it's hard for the bicentric slope to do anything to get the nation discover of it (unlike fighting inflation where bicentric banks hit 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 growth after declaring on Nov. 20 the frugalness was in deflation. Shirakawa, who yesterday pledged to behave promptly and decisively, has few options presented that the key overnight disposition evaluate is at 0.1 proportionality and the slope is already purchase polity and corporate debt.

The broad 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 focused and has a relatively weak husbandly obligation growth, this is bad 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 finance more abroad - all 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 offer three-month loans to advertizement banks at 0.1 proportionality under the newborn facility. Governor Masaaki Shirakawa obstructed brief of boosting the monthly direct for government-bond purchases from 1.8 1E+12 yen, a travel analysts said haw be taken within months.

It's not country advertizement banks module poverty to borrow from BOJ at all because their knowledge to fund themselves is not the issue. BOJ module need to get farther more aggressive to prevent an accelerating deflation (which the nation has not fully become discover of for decades).

If the underway way persist, wait BOJ to verify more aggressive actions to essay to depreciate it's nowness and viscus yearning liquidity into the system. Quantitative decrease or modify direct nowness intervention are quite possible.


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