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BOJ Japan mired in 'mission impossible' against deflation

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By Anne Beade

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Deflation -- or falling prices -- is dangerous for an economy as consumers defer purchases hoping goods will become cheaper. 

Gah! Not this nonsense again.

This is a bit of gibberish that has wormed is way into economic journalism.

Do you defer food purchases in the hope that they will fall in price? No.

Do you defer the purchase of electronic goods in the near certain knowledge that they will be cheaper and better in the future? No.

Inflation is just a basket of goods. If inflation is 0%, it will mean that some prices are falling while others ruse. Which are falling? Which are rising?

The reason prices fall is because demand has fallen so shops are forced to reduce prices to attract customers. As a result they make less money and pay staff less, who themselves can afford less.

It has nothing to do with deferring purchases in the hope of buyingthem slightly cheaper. Falling prices are symptom of problems in the economy.

Rant over. I'll read the rest of the article now.

5 ( +5 / -0 )

Ah so - nice analysis, it's incredible the amount of stupidity that is written down as economic wisdom these days, isn't it! Demand may cause inflation (but it's more likely to be cost push inflation in Japan) but I see no reason why inflation should create demand, which seems to be the idea behind the obsession with the 2% figure.

3 ( +3 / -0 )

Deflation is generally a good thing for people who have cash savings. It is a sign of a weak economy, though, so there will be lots of people who can't even afford the cheaper prices.

The government wants inflation, not because it will spur buying (they know it won't). They need inflation to pay off the massive government debt. And they'll need a lot of inflation for that. If they can't bring in some strong inflation, they will have to default on that debt, cut pensions, cut government services, etc., and that will make people angry at the government. With inflation, fewer people will blame the government, as they won't realized they are being robbed in slow motion.

0 ( +1 / -1 )

Deflation -- or falling prices -- is dangerous for an economy as consumers defer purchases hoping goods will become cheaper. This harms consumption and therefore stifles growth

Agree, this is the standard nonsense trotted out every time.  And the polcies that have been used to try and combat deflation are irresponsible and will end badly.

4 ( +4 / -0 )

If they keep saying people are putting off purchases its because there is no reason to purchase them.

If the JP gov wanted to increase sales tax, instead of doing a 2% rise in one go and then waiting another ten years or so to do any other raises, they would be better to increase it by 0.5% every year, then people know there is no point in delaying any purchase of high value goods.EG computers, cars, houses, white goods.

However we do put off our purchases, until just before there is a tax rise. We haven't changed out computers since the last sales tax hike, and we might upgrade just to beat the next sales hike.

People don't buy things now because there is no need to purchase anything really unless it breaks especially if your living with your parents,

We ca't afford a house, so we don't need to buy any goods for the new house.

Young people can live in a 3 gen home and again, they don't need to buy any goods because they have them already. As you get older you see the stupidity in buying things just for the sake of buying things, but prefer to save, for other things in life, or to give to their kids, grandkids something.

Immigrants on the other hand want to improve their lives, move up the ladder, set up business, travel home now and then, and maybe buy a house, but since Japan doesn't really allow for this, as the workers are only on limited visas, then it also holds back their life and also the economy.

There certainly isn't any point in buying a house that will loose 25% in value as soon and you sit in it. It's worse than a car, but you can at least trade a car in.

Maybe if they made buying a house easier, made homes cheaper, with a better quality of life, instead of a crappy little box, then young people might dip into their pockets.

Maybe slow incremental increases in sales tax over a number of years might shift peoples thinking to buy now. (if they truly believe people put of their purchases because people believe they will come down).

I have to also wonder if the internet is also responsible for pushing DOWN prices, and also inflation.

2 ( +3 / -1 )

Kuroda injected first between 60-70 trillion, then 80 trillion yen ($714 billion) a year into the Japanese economy.

Not really correct. The BOJ removed an equivalent value of other assets (bonds) from the economy at the same time. It wasn't really an "injection" but a "swap." This is why everyone (except me) was wrong when they said a few years back that massive QE would trigger "hyper inflation" and turn the yen into "funny money."

Inflation is inherent with today's globalized world order. Costs are being driven down, down down.

-1 ( +0 / -1 )

Shirai says Kuroda "really thought" his policy would spark inflation of two percent.

Seriously?

I guess I gave him too much credit.

He was originally calling on the government to fire the 3rd arrows and fix its finances too, which Abe has grossly neglected to do.

Kuroda had that much right but he was a bit of a dope if he thought stringing a slogan of “twos” together would be all it take to magically bring inflation to a steady two percent.

0 ( +0 / -0 )

I see no reason why inflation should create demand, which seems to be the idea behind the obsession with the 2% figure.

Quite right.

The notion of targeting inflation has its traces back in the 1980s when in New Zealand the finance minister at the time said his idea of “stable prices” was zero to one percent inflation, rather than the two percent figures achieved at the time.

They got serious about bringing inflation under control there, but over time other countries have found themselves being looser towards two perecent, not for any real reason besides political influences.

And ironically today Japan has “stable prices” as per the original definition offered by the finance minister in New Zealand.

So Kuroda is a useful idiot, but the government has to date been able to get away with its out of control spending for another half decade.

I don’t think it’ll all end nicely for stakeholders in the yen.

2 ( +3 / -1 )

You mean deflation right?

Yes, thanks for pointing that out. Or more accurately "low inflation."

0 ( +0 / -0 )

Good thoughts, @Bubblegun. That's the way it is in more countries than Japan.

0 ( +0 / -0 )

Maybe if they made buying a house easier, made homes cheaper, with a better quality of life, instead of a crappy little box, then young people might dip into their pockets.

Who is the “they” who might make this happen, though?

How might they do it?

0 ( +0 / -0 )

fxgai - interesting post. The difference between the NZ policy in the 80s and current Japan is that NZ simply wanted stable prices in an era where 10% plus inflation in developed countries was a recent memory, whereas the BOJ seem to view 2% inflation as a panacea to all economic ills!

1 ( +1 / -0 )

To an extent I do sympathize with the BOJ because they feel they must go for 2% too, because that’s what everyone else shoots for. But for everyone else it is usually a cap, rather than a lofty target.

Still if the BOJ is out of whack then it explicitly means the value of the yen will appreciate relatively due to its relative price stability. Personally I love strong currencies but politicians often prefer them weaker to save them from making any policy decisions to improve competitiveness.

(A mistake in my prior comment, I meant to say that they in NZ wanted zero to one % inflation at a time of two digit inflation, rather than two percent inflation - big difference!)

0 ( +0 / -0 )

Deflation -- or falling prices -- is dangerous for an economy as consumers defer purchases hoping goods will become cheaper. This harms consumption and therefore stifles growth

If this were true people would never buy anything on credit: they would wait until they had saved up the money, thus saving the interest payments and effectively purchasing the goods for less.

0 ( +0 / -0 )

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