Inflation gives BOJ buyer's remorse

Ludicrous isn't it? They expect inflation will cause people to spend more! If prices rise, people will spend less, obvious to everyone except for our illustrious powers-that-be. Anyway ,judging from my weekly trip to the supermarket, I would say prices are rising steadily or product quality/size/numbers falling.

You know, I always come out of supermarkets empty handed, because food prices will go down next week, so I wait, I think I can handle being hungry for week.

In a Reuters poll of 531 companies this month, nearly two-thirds said they had no plans to raise workers’ wages this year.

Once again Abe's urges are going to be ignored. No business owner in their right mind is going to arbitrarily raise their employees wages in uncertain economic times based upon the urges or requests of anyone.

Corporate tax cuts and raises for the rich? the public has no choice, but Abe will "seek their understanding" later. The condition of raising wages for said rewards expected to come AFTER the rewards being given? Nope... Abe just asks kindly that they do it, but it's up to them.

Whether at home or abroad, Abe's got to start understanding that giving someone something before they have promised to work for it will result in them not working for it. DOesn't matter if it's lowering corporate taxes as a first or second arrow, restarting nukes with promises of safety to come later, or money for third world countries in the hopes that it will come back later; get them to do something FIRST, and the money be a reward.

Abe is a moron. So is Kuroda.

And BoJ is going to "lose" trillions on all the JGB's it owns.

Funny just last year when the price of oil was low, they kept saying how they wanted it to rise so that it would affect inflation. Now that it is and Japan is suffering through a cold snap and people are bitching and complaining about the costs, they are worried that this is the wrong kind of inflation. I agree with the above posters that prices are increasing, portions and sizes are decreasing, and still they will not raise salaries or do anything to help the consumer.

Rising prices usually translates into people spending money now, because the same thing will be more expensive in the future. This is pretty basic and not ludicrous at all.

I get a sense that maybe the elite central bankers are starting to realise that what people want is strength in the economy, but not higher prices. It's not the case that inflation would result in a stronger economy. See Venezuela for extreme evidence.

People will spend more only when they are more confident about their future prospects. Inflation would be tolerable only if accompanied by improvement in future prospects.

employers are showing no inclination to raise wages.

That's a symptom of Japan's issues, not a cause. The Japanese labour market laws are a mess with two-tiers of worker, and those workers care more about job stability than they do about pay increases. That's why wages don't go up - the employees don't pick up their tools and go find a better job. Government has done nothing to address these fundamental issues.

With a crappy labour market and no incentive to be more productive to attract higher wages, of course there is no strength in the economy.

This only shows how out of touch the BOJ and Japan's politicians are from fundamental economics.

An over-protected and uncompetitive market and an antiquated and uncompetitive business structure leads to higher prices. Higher prices lead to reduced consumption, reduced population, and deflation.

There are two kinds of inflation, one is called "demand-pull", the other is called "cost-push."

Demand-pull inflation is caused demand exceeds demand, causing sellers to raise their prices. In order to meet excess demand, more products must be procured and sold, more people must be hired to make the products. This is the kind of inflation we have usually seen in developed countries over the past century.

Cost-push inflation is caused by increasing the currency supply, which dilutes it's value. Normally, cost-push inflation is usually found in corrupt, third-world countries whose economies are looted by their rulers, who resort to printing currency to replace what they have stolen.

That the BOJ and the government believed that they could somehow create demand-pull inflation by printing more currency and flooding into the economy is not only shortsighted, but stupid.

The only situation in which cost-push inflation can possibly work is when the economy still has the potential to grow beyond the value expended to increase the currency supply. Keynesian economic theories were viable during the depression era when populations and consumption were skyrocketing, and when the industrial revolution had not yet gotten up to full speed.

But Japan's economy does not have the underlying potential for growth. Domestic consumption has always accounted for most of GDP, and consumption is falling with the population. Consumption of Japanese exports is less likely to grow because Japan is no longer the low-cost labor producer it was in the 60's and 70's. Japan faces ever growing competition for the export market from China, India, and a dozen smaller countries in the region.

Japan will never regain it's dominance in the export market, Japan has never been able to compete on a level field with any other manufacturing country. Japan has always had to rely on manipulating the yen, and one-sided trade deals. This way of doing things will no longer work, the world evolves, mainly through competition, and since Japan has never tried to compete, it's economy has not evolved.

Japan can eventually create growth in it's domestic economy, but this will require vastly improving it's domestic economic efficiency. Pushing down the cost of living by enforcing laws against collusion and price fixing, allowing zombie banks and companies do die to make room for new, more competitive companies, and reducing the burden of the state, with it's endless rules, regulations, fees, and taxes.

Japan can either do what needs to be done to improve it's economic situation, or it can wait for nature to take it's course, which will achieve the same result, but with a great deal more pain.

But Japan's economy does not have the underlying potential for growth.

I like to be an optimist and believe that growth would be possible, if only the right policies were adopted! (Even if the potential is not great, I like to like the potential is not nothing)

Domestic consumption has always accounted for most of GDP, and consumption is falling with the population. Consumption of Japanese exports is less likely to grow because Japan is no longer the low-cost labor producer it was in the 60's and 70's. Japan faces ever growing competition for the export market from China, India, and a dozen smaller countries in the region.

This is so true and the reason why Japan so needs various reforms. The world has changed, Japan has changed, but it's still trying to cling to old business models, rather than embracing today's realities, and seeking to advance to a higher level.

Tsuchifumazu

Expected price rises such as from a new tax or rapid price rises translates into people buying now rather than later. There was a small boomlet of spending before the tax increase a few years ago.

If Shinzo-kun and the BOJ really want people to spend more, they should definitely and purposefully announce a tax increase for April 1. People will rush out to buy stuff. But after April 1, the economy will tank. As it did the last two times they increased the sales tax.

But normal price rises that are gradual and over a longer period of time usually does not translate into people buying now. People are aware that prices will increase on big ticket items like cars, major appliances, and houses but they aren't rushing out to buy them.

Coupled with either an uncertain future income or a stagnant income translates into saving more (for emergencies or unemployment.)