Two years on, BOJ chief says war on deflation 'very challenging'

The Bank of Japan has known for close to two decades now how to end deflation. They refuse to take the correct actions for political and ideological reasons, and if anybody doubts that they can watch the movie "Princes of the Yen", which is available on YouTube, and lays things out very clearly. For this clown Kuroda to then claim it is all "very challenging" and that he has to eradicate a "deflationary mindset" just exposes him for the fraud that he is.

How does the BOJ think it will combat deflation when people aren't spending? Japanese by nature are very careful with their money, and this has only increased 100-fold since the consumption tax was raised. I've been in Japan a long time & I've never seen people fight over a ¥10 saving at the supermarket like they're doing now. People are really seeing how far their yen will stretch.

I'm not necessarily against the tax hike (in fact I think it should be at least 10%), but the truth of the matter is that wages have not - nor will not go up. The government can "encourage" companies all they want, but we all know how that's going to turn out...

It's challenging because inflation isn't the problem, the problem is lack of growth. Growth causes inflation, economic contraction causes delfation. The BOJ thinks that causing inflation by devaluing currency, and then the government spending this money on stimulus projects will encourage growth. But it hasn't, and it won't. Japan's economic woes are not caused by a lack of liquidity, they are caused by a shrinking population, a high cost of living, and the inability of Japanese companies to compete either domestically or internationally. The automakers are doing well, but only outside Japan. Domestically, have lost money for the last several years, and, according to the news yesterday, aw a further 5% decrease in domestic sales this year.

In this problem, the government is more of the cause than the solution. Why are auto sales in Japan down? The government mandates expensive biannual inspections, charges excessive rosd tolls (when the roads were built, these tolls were to be abolished after they collected enough money to pay for constriuction, but of course, they weren't) ridiculous licensing fees, and other assorted taxes. Car sales continue to decline in Japan, along with the sales of numerous businesses and the related jobs which support the industry, everything from gas stations to car washes, to floor mats, to car stereos, to parking lots. And this is only one example of how Japan has drven down an insustry. Another indirect result of making car ownership more expensive is that fewer people travel to other communities by car (trains don't go everywhere in Japan) and this reduces inter-community commerce, and is one of the causes or rural decline.

There is nothing Kuroda or the BOJ can do to stop deflation short of destroying the yen completely.

“We have enough tools to combat deflation and achieve price stability…but it’s been very challenging.”

Helicopter drop — it's the one and only tool that would fuel substantial spending and kick deflation.

Forget the indirect, trickle down approach of quantitative easing, putting wads of money straight into the hands of consumers would do the trick, and this helicopter money should particularly go to those in Japan who are raising the nation's next generation and are saddled with education expenses and other burdensome costs of child rearing (which would also encourage a higher birthrate and help alleviate Japan's imminent demographic catastrophe).

If what Kuroda really wants to do is stimulate spending to combat deflation, the current quantitative easing approach is not exactly the best way to go. QE mainly lines the pockets of the 1%, and monetizes Japan's fiscal debt with the BOJ purchasing the lions share of Japanese Government Bonds using new fiat money created out of thin air through a few keystrokes (which increasingly seems like Japan's strategy for paying off the massive government debt).

I, for one, hope it remains challenging.

It really ticked me off to see my favorite ice cream go up from 398 yen to 470 yen last month.

As usual sangetsu03 is spot on. Especially this:

Japan's economic woes are not caused by a lack of liquidity, they are caused by a shrinking population, a high cost of living, and the inability of Japanese companies to compete either domestically or internationally.

And I would simply add that the high dependence on imports, especially food, is a major factor as well. Pumping all the money into the economy did, as the article states, lower the yen, helping exports, and boosting the stock market. But it also made imports much more expensive, and, combined with the tax increase, pushed many folk's budgets way into the red. They cannot afford to spend more, and are not concerned that things may be 2% more expensive in a year -- things are already much more expensive.

sangetsu great apt comments as usual. Won't you take over as PM mate??

Yes Japan's situation is hopeless, it's just a dying old people's home now. And all economic policies are enacted with the rich and elite in mind. Hopeless!

Let me make one addition. There is no author byline, so I have no idea whom I'm criticizing, but:

While deflation may sound good for Japanese consumers, it means people tend to put off buying because they do not expect prices to rise and hope they might even get goods cheaper down the line.

While copying and pasting the same paragraph (a biased, one-sided paragraph at that) into article after article for over two years may sound convenient for hack journalists, it means readers tend to stop listening what you have to say, stop trusting you, and wonder if you have an agenda at work.

I've seen that same article trotted out so many times, and from a purely common-sense point of view, it doesn't make any to me. People may put off a purchase because the think they'll have more money at some future date, but if they have the money they don't put off the purchase until a later date.

I've seen that same article trotted out so many times, and from a purely common-sense point of view, it doesn't make any to me. exactly, such articles should be made available to paid subscribers only :)

He's lost the battle, and he knows it. What next for Abe, if the experiment bearing his name fails?

For two years now, since the present administration took charge, we have been hearing that everything concerning the economy is on track and that there is no problem. Now Kuroda says it's "very challenging." Wish they would quit screwing up the economy and really try to get things to work properly. I'm getting tired of all these price increases made for the sake of somebody's wishful thinking ... which seems to be quite astray.

While deflation may sound good for Japanese consumers, it means people tend to put off buying because they do not expect prices to rise and hope they might even get goods cheaper down the line.<

Bull dinky. 20 years of deflation has been a godsend. I do not know of anyone that waits a week or a month to buy something hoping the price goes down.

No inflation....level...keep it and leave it alone.

While deflation may sound good for Japanese consumers, it means people tend to put off buying because they do not expect prices to rise and hope they might even get goods cheaper down the line.

The media constantly parrots bogus mainstream economic "theories" and talking points, no matter how many times they have been debunked. Inflation expectations is just one example. Spending is determined by affordability and necessity, and in the rare cases where people do wait for the prices to go down they don't wait forever. Spending is just shifted from one reporting period to another, and they likely spend the money saved on something else. Net effect is virtually zero. Same goes for lines like "monetizing the debt" and "vast monetary easing program". No money is created by QE, all that is happening is that already existing money is being shuffled between accounts. If the BOJ buys a government bond from somebody, that person must have bought the bond with money in the first place. Can't acquire the bond any other way, and they are just giving them their money back. Kuroda claims otherwise, which means he is either an idiot or a liar. No option three.

No money is created by QE, all that is happening is that already existing money is being shuffled between accounts.

That is false. QE means "quantitative easing"; "quanity" means a number of a countable things, "easing" means relaxing or extending a limit. It does not mean "shuffling money between accounts". The government is trying to cause inflation by increasing the money supply, increasing supply drives down demand and prices, and inflation is caused because it takes more of this devalued currency to buy something. The BOJ increases the money supply two ways, by adding zeros to the balances it holds in it's accounts, and then loaning this money out to commercial banks at low interest. The other way is by issuing debt in the form of bonds, and then adding more zeros to other balances in other accounts which it uses to buy these bonds. It remains an obvious fact that the money supply has been increased, America has increased it's money supply by 140% since 2008, Japan is following in America's footsteps. Unfortunately, unlike America, Japan is not independent in food or energy resources, and has a rapidly falling population, QE is not going to work.

No money is created by QE, all that is happening is that already existing money is being shuffled between accounts.

Well, QE does increase the amount of base money.

If the BOJ buys a government bond from somebody, that person must have bought the bond with money in the first place. Can't acquire the bond any other way, and they are just giving them their money back.

The BOJ is giving them newly created base money, not their own money back.

The money originally used by the bond holder to make the purchase went to the government (or whoever the holder of the bond bought it off in the secondary market). Also the BOJ is also buying the bonds at elevated "prices", so the bond sellers are making yen-denominated "profits" in this process. The BOJ purchases are on a scale to the extent that they are virtually bankrolling the government's ongoing profligate spending.

Kuroda claims otherwise, which means he is either an idiot or a liar. No option three.

I'm not sure what you think Kuroda is claiming, but there are other possibilities.

It remains an obvious fact that the money supply has been increased

Indeed it is.

Although the central banks have filled the petrol tanks to overflowing, it's just fortunate in a way that governments keep their foots firmly on the breaks, for if they were to get out of the way and economies were to grow, all this extra base money could start racing around the economy causing lots of nasty inflation.