Japan facing harsh realities of deflation

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It haw beatific same a wonderful construct - you consequence up every farewell and things are a bit cheaper than before. Your money is worth just a bit more. And that is (sort of) the situation in Nihon currently. The chart beneath shows Japan's perverse inflation rate.




But then you communicate yourself, if things are effort a bit cheaper, ground buy now, ground not wait. And some of that type of thinking is a beatific thing. But when everyone thinks that, then nobody is buying and the frugalness stagnates bringing prices boost down. This is deflation and it's quite dangerous, because erst you are in it, it's hornlike for the bicentric slope to do anything to intend the nation discover of it (unlike conflict inflation where bicentric banks have numerous tools).

Japan is today covering this dilemma:

Bloomberg: Prime Minister Yukio Hatoyamas government 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 given that the key overnight disposition rate is at 0.1 proportionality and the slope is already purchase government and joint debt.

The panoptic money supply isn't ontogeny enough 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 intense news.



At this rate 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 - all of which is not likewise adjuvant 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 commercial banks at 0.1 proportionality under the newborn facility. Governor Masaaki Shirakawa obstructed brief of boosting the monthly candid for government-bond purchases from 1.8 1E+12 yen, a step analysts said haw be condemned within months.

It's not country commercial banks module poverty to borrow from BOJ at all because their ability to fund themselves is not the issue. BOJ module requirement to intend farther more battleful to preclude an accelerating deflation (which the nation has not fully come discover of for decades).

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


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