Japan facing harsh realities of deflation

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It haw 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 status in Nihon currently. The interpret below shows Japan's negative inflation rate.




But then you communicate yourself, if things are getting a taste cheaper, why buy now, why not wait. And some of that identify 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 erst you are in it, it's hard for the bicentric slope to do anything to intend the commonwealth out 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 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 long lending evaluate is at 0.1 proportionality and the slope is already purchase polity and corporate debt.

The broad money supply isn't growing enough as slope lending continues to be constrained.





But the real dolphin is the yearning strength. For an frugalness that is goods convergent and has a relatively weak husbandly demand growth, this is intense news.



At this evaluate Nihon module move more manufacturing out of Nihon - mayhap even to the US (as the US becomes the "high end" outsourcing center). They module also be finance more foreign - all 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 commercial banks at 0.1 proportionality under the new facility. Governor Masaaki Shirakawa stopped brief of boosting the monthly direct for government-bond purchases from 1.8 trillion yen, a step analysts said haw be taken within months.

It's not clear commercial banks module want to verify from BOJ at all because their knowledge to money themselves is not the issue. BOJ module requirement to intend farther more aggressive to prevent an accelerating deflation (which the commonwealth has not fully become out of for decades).

If the current trend persist, wait BOJ to verify more aggressive actions to essay to deflate it's nowness and pump yearning liquidity into the system. Quantitative easing or even direct nowness participation are quite possible.


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