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Bank of Japan says no tightening as oil rates stir inflation

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In another word: our debt to GDP is about 256%, #1 in the world, 1/3 of our tax revenue already goes into servicing the debt , if we raise interest rate even by a tiny fraction there will be nothing left for anything else, we screwed up the policy about 2 decades ago, now there is no other choice but to continue this Ponzi scheme.

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Less disposable income for the majority of Japanese will lead to a sharp recession.

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swinging between periods of sluggish inflation and deflation, both considered bad for growth

Look, this is completely backwards.

Growth does not occur because the value of your money decreases every year.

Japan has price stability.

What it does not have is growth.

Economic growth comes from the people of the economy, not a bunch of central planner clowns.

What Japan needs is policies that boost the incentives for productive work and investment in Japan.

And with the currency plunging, the higher costs of imports at a time of increased commodity prices is hardly an incentive to boost economic activity.

Where is our “safe haven” yen…

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 other choice but to continue this Ponzi scheme.

A Ponzi scheme with free access to a machine that prints one of the world's top safe-haven currencies. How does that work?

What Japan needs is policies that boost the incentives for productive work and investment in Japan.

Tiny Japan makes Toyotas, Hondas and supplies the world with nearly half its industrial robots. Japan is also a leading global producer of machine tools and components that keep the industrial world running, despite having a population considerably smaller than rivals US, China. How is that not "productive"?

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It is productive, but just doing more of the same is not growth. Japan needs more innovation and productive activity to grow, not just status quo.

one of the world's top safe-haven currencies

War is raging in Eastern Europe yet the yen is at multi-year lows. Where is that safe haven in the yen…

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What this all means is that corporate Japan is dependent on BOJ easing and asset purchases to keep their share prices high.

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What this all means is that corporate Japan is dependent on BOJ easing and asset purchases to keep their share prices high.

No. Japan has suffered from deflationary pressures for over two decades. For Japan a rise in inflation is not a bad thing at this point. If inflation rises beyond 3-4% I expect the BOJ will do something about it.

In any event the inflation the world is experiencing now is not from an overheated economy that can be reduced by increasing interest rates. That is why the US Fed has been so reluctant to raise interest rates. What is driving price increases is shortages caused by supply chain disruptions. Even just this week China shut down the whole city of Shenzhen. Anything made there, which is a lot of electronics used in other products, isn't being made and the port is shut down, backing ship up off the coast of China. They will be late unloading, late loading and late to their destinations. Shanghai is on the verge of shutting down too. This is not a case of too much money chasing too few goods that is amenable to being slowed down by raising interest rates, the traditional cure for inflation. Right now it looks more like more investment in the supply chain is needed and raising interest rates might be the exact wrong thing to do if it makes it more expensive to fix the problems that are feeding the supply chain disruptions.

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If inflation rises beyond 3-4% I expect the BOJ will do something about it

… based on the FOMC hiking rates a quarter of a basis point in the face of CPI inflation at 8% and producer prices at 10%?

What makes you expect that?

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What makes you expect that?

Japan's situation is different from that of the US and almost any other nation in the world. Japanese consumers are more price sensitive than their US counterparts. Just two very different economies and societies. Right now the BOJ is probably quietly and privately cheering the low but positive inflation Japan is experiencing after decades of teetering on the edge of deflation.

And btw, global deflationary pressures are not gone. The Velocity of Money continues it's decades long decline and the accumulation of greater wealth in fewer hands has accelerated. No nation has done anything to address one of the major underlying causes of the deflationary pressures and that is the prevalence of monopolies and oligopolies in major consumer markets. Not just tech, but basic things like bread, snack foods, meat processing, beer, soft drinks, household and personal cleaning products (toothpaste, soap, shampoo, dish and laundry detergent, etc. ). Most of the aisles of the grocery store are dominated by two or three major corporations. The lack of effective competition allows oligopolists to extract a degree of monopoly rents, raising prices and reducing outputs that would not be possible in a fully competitive (meaning a minimum of six firms with roughly equal market share competing in a given market, not one or two big firms that have 80-90% of the market and a handful of smaller firms each with only a single digit market share). None of that has changed and when the supply chain disruptions and resulting shortages that are driving the current bout of inflation works themselves out, expect to return to the pre-covid situation with national banks trying everything to stave off deflation.

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I am skeptical that the inflation is all just supply chains related and will naturally work itself out.

I suspect that loads of public spending stimulus while the productive parts of the economy were under constraint is in large part responsible for the inflation. And that once peoples expectations are for higher inflation, that it feeds on itself.

The FOMC too stopped calling the inflation transitory after it went on and on and has been getting worse.

I don’t know what the BOJ nutters really think, but I don’t think Japanese consumers will be any more impressed about inflation than people in other places.

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I am skeptical that the inflation is all just supply chains related and will naturally work itself out.

COVID and Ukraine are unprecedented global events in the postwar era, in particular the economic shocks they are generating. And they're happening concurrently! Downplaying their effects on supply-demand and thus prices is insane.

I suspect that loads of public spending stimulus...

Japan was the world's stimulus king for 20 years and ended up with deflation swinging to extremely low inflation. Some people prefer narratives to justify an ideology rather over real events in the real world

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I suspect that loads of public spending stimulus while the productive parts of the economy were under constraint is in large part responsible for the inflation. And that once peoples expectations are for higher inflation, that it feeds on itself.

If you look at actual money supply data, the underlying trends have not been affected by stimulus, or anything else it seems. You see spikes in money supply growth corresponding to specific stimulus actions but the trend line before and after remains constant. The great majority of money supply growth come from loans, and these are business decisions by lending institutions who look at the likelihood of repayment and the profitability of the loan. Those business fundamentals driving loans and thus money supply changes haven't changed noticeably. Likewise velocity of money remains on its twenty-plus year downward trajectory and that is because as money concentrates in fewer hands it is saved and not spent. The dollars that are out there change hands less often and that is reflected in a downward trend in velocity. The current round of inflation does not appear to be driven by stimulus or by too much money chasing too few goods. There are specific price increases due to supply chain disruption driven shortages. When the supply chain disruptions are worked out expect deflationary pressures to resume.

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