business

BOJ under pressure as inflation tops 2%

16 Comments
By Noriyuki Suzuki

The requested article has expired, and is no longer available. Any related articles, and user comments are shown below.

© KYODO

©2022 GPlusMedia Inc.

16 Comments
Login to comment

For heavens sake, the BOJ has been doing everything possible to reach a target inflation of 2% for a decade.

The global financial system, including the BOJ and the FED and bankers, are nothing but charlatans and con men.

4 ( +10 / -6 )

The usual catch phrases, including this one...

driven by higher energy and commodity prices largely blamed on the war in Ukraine

Please, stop. Turns out the bulk of the public isn't that stupid after all and are finally waking up to the global fleecing going on for 'most 2.5 years now...

2 ( +5 / -3 )

The BOJ's credibility now depends on whether the current inflation remains at its level or goes higher, or whether it's temporary. If the Ukraine shock eases and China finally conquers its COVID crisis (with better vaccines), I expect prices will move back down again, and the BOJ's loose policy will be warranted.

-1 ( +2 / -3 )

Since when have prices gone down in JP?

4 ( +5 / -1 )

A potential savior is what the BOJ and economists call "forced savings," or trillions of yen that likely have accumulated due to restrictions imposed by COVID-19, because the money could serve as a buffer in the short-term. For the longer-term, more robust wage growth is a must, economists say.

+++

Naoko Ogata, a senior economist at the Japan Research Institute, said it is "inevitable" that the prospect of accelerating inflation will cool sentiment. But so-called forced savings worth around 20 trillion yen ($156 billion) and government subsidies to cushion the negative impact of higher energy costs would offer some help. "Provided that a working family of two or more people has around 500,000 yen in forced savings, they can absorb an estimated blow of less than 100,000 yen a year from the recent inflation," Ogata said.

Found yourself asking, “what is forced savings”? And how can it be a savior?

Good questions.

In the most common usage, forced savings / involuntary savings is

the enforced reduction of consumption in an economy. This can be achieved directly by the government increasing taxation so that consumers’ disposable income is reduced or it may occur indirectly as a consequence of inflation, which increases the price of goods and services at a faster rate than consumers’ money incomes increase.

Governments may deliberately increase taxes so as to secure a higher level of forced savings in order to obtain additional resources for investment in the public sector. A ‘forced saving’ policy is often attractive for a developing country the economic development of which is being held back by a shortage of savings. Collins Dictionary of Economics, 4th ed. 2005.

Close, but not quite there, you would say. And you would be right; particularly since it involves the integration of severals theories of economics, that do not always apply in the real world. Or make sense in all situations.

Here is a way of looking at this, that might take us closest to where the Bank of Japan is hovering towards salvation. If looking, not at redistribution of wealth that may accompany a credit-driven boon, in a boon-and-bust model, then forced savings may refer more closely:

to an increase in saving near the end of the [financial] boom. Consumer goods have been in high demand during the boom but are now increasingly in short supply because so many resources have been committed to production processes that are yet to yield any consumable output. The prices of consumer goods are bid up, which . . . "brings about the tendency toward forced saving." Reinforcing this tendency is the movement in the rate of interest during this same phase of the cycle. Entrepreneurs who are trying to secure additional - but increasingly scarce - resources to see their projects through to completion are bidding up interest rates, a circumstance that provides an incentive for would-be consumers to save instead.

Used in this way, the concept of forced saving is wholly conformable with the concept of overconsumption. The two terms taken together suggest a pattern of consumption and saving that characterize the boom-bust cycle. As the boom begins, consumption demand is high relative to the pre-expansion level. Incomes earned by workers and other factors in the early stages of production are being spent on consumer goods. To the extent that this high consumption demand is met with increased allocations to the late stages of production, then resources are being doubly misallocated. Considerations of derived demand and of time discount are sending resources in opposite directions . . . Production activities in the middle stages, which have been effectively raided because of high demands in both the early and late stages, eventually reach maturity but with yields of consumer goods that are deficient with respect to both the boom phase and the pre-expansion economy. It is at this point that consumption falls, as it must, and saving increases. * [Footnotes and internal references omitted].

Roger W. Garrison, Overconsumption and Forced Saving in the Mises-Hayek Theory of the Business Cycle, History of Political Economy, vol. 36, no. 2 (summer) 2004.

Perfect? No. But is a starting point. But it is kind of interesting. And good for a robust discussion.

If this has drawn out the natural economist in you, there is much more available in the above reference at https://webhome.auburn.edu/~garriro/strigl.htm.

And if this really inspires a deeper understanding, you can ruminate over the base theory with the Austrians at the Mises Institute - Jesús Huerta de Soto, Artificial Booms and the Theory of "Forced Saving,"2018, for The Mises Institute - at https://mises.org/wire/artificial-booms-and-theory-forced-saving .

Good times.

0 ( +0 / -0 )

Folk with 'forced savings' are lucky.

For many of us, the pandemic was brutally expensive in lost business, lost earnings and higher costs.

Rich people won't notice inflation. It is the poor who will feel it, with no savings, forced or otherwise. And it is the basics that the poor buy - food and energy - that are going up the most.

Real price rises for food products are more like 20% to 50% in Europe. Japan must be truly special if it gets 2.2% this year, falling to 0.7% next year.

Wage hikes won't help. They won't keep pace with inflation and they will be paid for by further increasing prices for goods and services, which will in turn push inflation up even more.

This is not Abe's 'virtuous cycle' but a toxic one.

Successive Japanese PMs might regret signing their names to a policy promoting the joys of inflation, now that it is here.

I guess deflation is one of those things you only appreciate after you have lost it.

JeffLee: The US and EU are settling in for a long war accompanied by a wider Cold War 2.0, whilst Covid Zero is not just unsustainable, but impossible to maintain with Omicron. To get Covid figures down, it has to run through a (preferably vaccinated) population. That means letting the case numbers shoot up and then come down naturally, as happens with seasonal flu. That has happened in the UK and much of Europe. China continues to suppress Covid, so it will return as soon as they reduce their lockdowns. They have condemned themselves to an Orwellian endless war in pursuit of Covid Zero, with their citizens and economy as the victims. It is 50/50 whether Japan will close its borders again (needlessly) for monkeypox. That is a political decision. But don't expect a fast rebound unless someone bumps off Putin and the next Russian regime decide to rejoin civilised society.

The BoJ will always consider their credibility to be intact. If things don't go the way they say, they will just point to something unexpected and give that as the reason why they got it wrong.

Skeptical: Quoting: The prices of consumer goods are bid up, which . . . "brings about the tendency toward forced saving."

No. When consumer goods go up, people have to pay more for them and have less cash. Poor people don't have luxury goods that they can put off buying. Everything they have, they need, and when it fails, they have to replace it.

2 ( +5 / -3 )

AgentX

Since when have prices gone down in JP?

Since the bursting of the Japanese bubble and until quite recently. The cost of living in Japan before 1992 was outrageous.

4 ( +5 / -1 )

Fair point, but at what cost?

And prices were going down until recently? I didn't notice...

3 ( +3 / -0 )

JeffLee

AgentX

Since when have prices gone down in JP?

Since the bursting of the Japanese bubble and until quite recently. The cost of living in Japan before 1992 was outrageous.

Don't know about where prices (or salaries for that matters) were back then, but what I know is that the bubble did burst 3 decades ago, in others words, that was:

.30 years ago

.2 emperors ago

.last century

So, you may (possibly) realize that nobody cares about a period were a lot, or most of us were not even remotely close to Japan.

As for prices going down, where exactly do you live? I have been here sine 2004 and a total increase of VAT from 3 to 7 percent devaluated my salary by the same...

-2 ( +4 / -6 )

The mission is accomplished?

Abenomics finally brought inflation to Japan at the cost of becoming a poor country that will be heavily reliant on foreign, communist money.

-4 ( +3 / -7 )

If it wants to increase inflation it might want to consider increasing sales tax 1% every year to break that psychology of deflation and prices never moving instead of jamming in 2% increase every few years, then saying it’s to pay for blah blah when the truth is, it’s to keep the ship steady or pay the debt. If inflation goes too high, japans going to be crushed if interest rates have to go up. But I wonder if japans strategy is to let all the other countries do the work in keeping prices down as Japan is mainly an export country, then repatriate the dollar’s, pounds, euros, as it’ll get more taxes from the huge corporations.

0 ( +1 / -1 )

Central planning in Japan has been such a roaring success, hasn’t it.

Anyone remember Kuroda’s original 2-2-2 thing? Steady 2% inflation in 2 years by doubling the monetary base.

Completely didn’t do what Kuroda claimed it would do, yet almost a decade later, there he still is.

The only 2 in there is the value of the yen, cut in half.

0 ( +5 / -5 )

They don’t seem to factor in the quantity in food packets has been shrinking for a decade. You get way less value for the yen these days.

Just noticed this week, the packet of ice creams my daughter likes, down from frozen 7 bars per box last time I bought them, to now 6 bars. The size of each one is at least 30% smaller than a few years ago, yet price remains the same.

The supermarkets in my area always sold fish with three pieces per pack. Now they are all two.

Yoghurts went from 500ml to 450, past year or two down to 400ml and some are even claiming a huge 375ml per container!

Some milk companies tried to sell 900ml cartons… in my area very few people bought them, so they changed back to 1 liter.

Hundreds of examples over the past decade, at least In Chūō-ku Tokyo.

2 ( +3 / -1 )

That’s all only becoming a problem if a majority of 51% or more would be affected and getting some first slight feelings of becoming poorer. But that’s obviously not the case so far. They all have average or quite ‘fat’ cars and completely fill with them all available parking lots of the Pachinko parlors. That’s the economical indicator here, the only one that really counts and gives you all information you need. Complaining loudly about some lunch or food prices rising a few yen, but still happily gambling away several 10,000¥ bills, that’s giving you a more realistic picture.

0 ( +0 / -0 )

Central bank scam continues. Nothing to do with inflation and everything to do with trying to keep borrowing costs down so the J Govt and can issue more deb

-1 ( +0 / -1 )

Since when have prices gone down in JP?

Since the bursting of the Japanese bubble and until quite recently.

My memory is that only house prices and stock prices fell, after rising massively during the bubble.

0 ( +0 / -0 )

Login to leave a comment

Facebook users

Use your Facebook account to login or register with JapanToday. By doing so, you will also receive an email inviting you to receive our news alerts.

Facebook Connect

Login with your JapanToday account

User registration

Articles, Offers & Useful Resources

A mix of what's trending on our other sites