Bank of Japan sees zero inflation in setback for 'Abenomics'

Japan’s central bank said Tuesday that tumbling world energy prices could push inflation to zero, marking a big setback in Tokyo’s attempt to kickstart the world’s number three economy.

StromR -- I'm still waiting for all that great news you said was right around the corner for the Japanese economy. In the meantime, I'll stick with my conclusion that Abenomics was nothing but a disguised pork-barrel spending plan that had some short-term impact, but has done nothing to alter the real structural problems in the Japanese economy.

The problem is not deflation causing lack of growth, but lack of growth which is causing deflation. The government cannot cause growth by creating inflation, it has to find a way to create growth. The economy in Japan is like a horse and wagon, and the horse is dying. Rather than cure the horse, or get another, the government is instead buying a larger and heavier wagon. This is only accelerating the demise of the horse.

Those companies which are earning profits are of course not investing them in Japan. Business people know more about economics than politicians, the worst-run Japanese company has lost far less on their investments than the Japanese government has. These business people know the population is falling precipitously, while public debt accumulates ever more quickly. They are not going to bet their money in a game they know they are doomed to lose in the end. They are also trying to twist Abe's arm into using the phantom "third arrow", because without the third arrow, Abenomics is nothing but the government creating assets which it then loots to keep itself and it's cronies in power.

If the economy and businesses eventually see the promised reforms, and the prospects for growth become apparent, then they will begin to invest and raise wages. Unlike the government, they cannot print more money to replace that which they lose.

Those companies which are earning profits are of course not investing them in Japan. Business people know more about economics than politicians, the worst-run Japanese company has lost far less on their investments than the Japanese government has. These business people know the population is falling precipitously, while public debt accumulates ever more quickly. They are not going to bet their money in a game they know they are doomed to lose in the end.

sangetsu03 -- great post. As the old saying goes "Money talks, and Bullsh@t walks", and as you say, business leaders understand the true fundamentals of the Japanese economy, and are not giving into Abe's calls for increased wages. They can invest those funds overseas -- and Japanese companies are buying foreign firms left and right -- and get a much higher return than they can in the domestic market.

tumbling world energy prices could push inflation to zero, marking a big setback in Tokyo’s attempt to kickstart the world’s number three economy.

Says who? Inflation is not growth. You sometimes get inflation when you have growth, but you do not need inflation to have growth. I hate AFP articles, they always come across like such a mouthpiece.

faltering efforts to conquer years of deflation that have been blamed for holding back growth.

... by reflationists, who might have the order of things completely backwards. That's my best guess, anyway.

Tokyo’s economy-boosting campaign stumbled after the government raised sales taxes

... and the plunge in the yen and consequent increase in import prices - which merely weren't concentrated around a single date like with the April 1st tax hike - had nothing to do with it? I really hate AFP articles.

“Given record-high corporate profits and the tight labor market, I think the conditions are there for wage rises,” he said.

I agree with Kuroda on this point. But that being the case, we should not need to hear the Prime Minister constantly begging companies to raise wages. Shut up and let the market forces do their work in response to the policies, rather than act like the leader of a centrally planned communist state.

Hmmm. I was thinking it's just coincidence that Abe sounds like some South American basket case country's leader, but maybe there is more to it?

But plunging oil prices have dealt a serious blow—Japan’s core inflation rate in January was just 0.2%.

This is GOOD news! Now get the government out of the way and let the economy grow!

Still Japan is haunted by massive debt that will soon bring it to its knee's and the yen has started a fall that is unlikely to stop. A loop is developing that will feed on itself. As the yen falls and people in Japan realize that it is liable to continue, more and more people will want to put their money abroad, at that point the yens fall may become unstoppable.

The financial news flowing from Japan has become so loaded with conflicts of interest and internal deals created to prop up one weak institution with another that it would be called comical it the ramifications were not so serious.