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Deflation fears creep back in Japan as pandemic hits prices

26 Comments
By Leika Kihara and Daniel Leussink

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26 Comments
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Good news. Inflation makes things more expensive for me.

14 ( +16 / -2 )

Minutes of the BOJ's March rate review showed board members voicing concerns about a cash squeeze for small firms, spiking unemployment and a slump in business spending.

When nobody has money to buy anything then prices fall.Whatever the government and the BOJ have been doing until now ffs is beyond me!

8 ( +8 / -0 )

So the narrative is that the government is “printing money” but nobody is buying anything with that money.

Something doesn’t jive here.

3 ( +7 / -4 )

Precis:Economic activity grinding to a halt, price of oil freefalling and markets and their political cronies in a panic. Meanwhile in this deflationary spiral people can't pay rent, are resorting to Depression-era food strategies and meager assistance is rolling out at a snail's pace.

10 ( +10 / -0 )

This might be the most noxious, one-sided, Abe/Kuroda/BoJ-worshiping, pro-LDP-and-anti-working-class articles I've seen yet on this site. Lots of copy-pasted phrases, lots of subtly-LDP-favoring word choices. Same author all the time, too.

13 ( +14 / -1 )

So the narrative is that the government is “printing money” but nobody is buying anything with that money.

The narrative is wrong, if taken literally. The BOJ is buying bonds and other assets from commercial banks and giving the banks yen credits in return. This causes interest rates to fall, since there's fewer bonds for sale, and the banks can now more easily lend or invest the additional "cash". This is why it's considered stimulus to the economy.

The interesting thing is that the massive boost of "cash" in the system is leading to deflation. Neo-classical economics, on which our market economic systems are based, says higher money supply creates....get this...inflation. Hence, the fallacy of "free market" economics.

5 ( +7 / -2 )

Leika Kihara is a quality journalist with Reuters, I contend.

The interesting thing is that the massive boost of "cash" in the system is leading to deflation.

I think the forces of the pandemic keeping people at home and not buying anything and fearing for the economy are what is causing the deflation, rather than anything the BOJ is doing.

0 ( +3 / -3 )

Something doesn’t jive here.

Jibe, not jive.

I can see how a limited understanding of how the world works, due to the cultural biases from growing up in a dictatorship that controls all information could make it impossible for one to be able to understand the complexity 

In a room of 100 random people, you can count on one hand how many of them have even a basic understanding of macroeconomics. In a room full of economists, you might need to use both hands.

The interesting thing is that the massive boost of "cash" in the system is leading to deflation. Neo-classical economics, on which our market economic systems are based, says higher money supply creates....get this...inflation. Hence, the fallacy of "free market" economics.

Too short a time span - like trying to predict yearly climate information based on a week in January. If higher money supply does not create inflation, we can all stop working and just ask the government to print money for us whenever we need. Instead of $1200 or so, let's give everyone a cool million. Should work, since basic economics is a fallacy, right?

Nobody has money now, people are losing their livelihoods - hence, spending is down. When the economy hits bottom and starts to look like it can rebuild, hello inflation.

1 ( +4 / -3 )

Too short a time span.

Japan has been engaging in monetary loosening - ie, dumping huge amounts of cash into the system - for 20 years now. I think that's long enough to draw a basic conclusion about how "inflationary" these actions have been.

2 ( +4 / -2 )

Japan has been engaging in monetary loosening - ie, dumping huge amounts of cash into the system - for 20 years now. I think that's long enough to draw a basic conclusion about how "inflationary" these actions have been.

If you're sure of that, then I why not print more? A million yen a month to everyone seems fair.

0 ( +2 / -2 )

When people are afraid they tend to hoard and save, money will not be free flowing. Most of Japan's economy are held in the hands of seniors who have experienced hard times after Japan's defeat by the US in the last great war.

The J-government has been waiting for these seniors to pass away, so their inheritance will get into the hands of their less fiscally responsible descendants with an initial slice off the top for the J-gov from the inheritance tax.

4 ( +5 / -1 )

Hopefully the price of greed is killed by this virus like my low paying service job was. This led me greater opportunity. Hopefully others can take advantage of this situation to make it a success instea of a failure.

Hopefully prices lower for the long term and stop taxing peoples lives so they can give more to their families. Instead of paying for greedily priced goods.

1 ( +2 / -1 )

If you're sure of that, then I why not print more? A million yen a month to everyone seems fair.

Hell, let's just make it a million a day - then we'll be rich beyond our wildest dreams.

0 ( +2 / -2 )

Japan has been engaging in monetary loosening - ie, dumping huge amounts of cash into the system - for 20 years now. I think that's long enough to draw a basic conclusion about how "inflationary" these actions have been.

The previous actions were to counter the deflationary direction of the economy, so without them, you would have had quite marked deflation.

0 ( +2 / -2 )

Good news. Inflation makes things more expensive for me.

Falling prices is not per se a bad thing - electronics get cheaper every year and no one complains.

However, even prices fall across the economy it is usually a sign of wider economic malaise, because people are forced to cut prices.

It can't also lead to a vicious circle of lower prices leading to lower salaries which leads to lower demand, which leads to lower sales and again, falling prices.

As an example, I returned to a minshuku that I had not stayed in for over a decade. The price was actually lower (hooray!) than a decade before, but when I got there, it was tattier than before and the aircon had been removed from the rooms.

Demand had dropped, and then only survived by dropping prices and reducing the service. Deflation in action.

1 ( +3 / -2 )

The interesting thing is that the massive boost of "cash" in the system is leading to deflation. Neo-classical economics, on which our market economic systems are based, says higher money supply creates....get this...inflation. Hence, the fallacy of "free market" economics.

On the other hand, they are dealing with the demographic cliff with hundreds of thousands retiring every year and fewer babies born so their efforts may actually be cushioning the inevitable decline that is unstoppable.

3 ( +4 / -1 )

Deflation is great because it makes people reflect on the needs of the one over the needs of the masses. If you do not need something, why the heck would you buy it?

0 ( +4 / -4 )

If Japan really wants to "end falling prices" and depreciate the Yen, why not give every citizen 10m yen? The BOJ would have to buy a lot of JGBs but this can be done given it has pledged "unlimited" buying and doesn't seem to be concerned about the size of its balance sheet. 

It's really frustrating to hear Kuroda talk about the perils of deflation. If this was Japan's biggest problem, it could be easily fixed (eg massive cash giveaway). The harsh reality is he, and other senior officials, are more worried about the exact opposite problem - hyperinflation and massive currency depreciation. This is typically what happens when a country monetizes its debt, something which Japan has been doing for years and is doing really aggressively now.

The market is fooled into thinking the expansion in Japan's money supply is temporary and limited. It's not. The BOJ will never sell the JGBs it is buying (and probably won't sell its equity holdings either). It will just keep printing money. When the market finally works this out, the Yen will depreciate markedly, and "falling prices" will no longer be a problem.

3 ( +3 / -0 )

Once the economy starts rolling again in serious, that’s after the soon to come second then third COVID-19 wave, banks will not want to lend to the small guy. It’ll be too dangerous still. I don’t see a major improvement for a generation or two, provided we’re not hit by another disastrous typhoon or earthquake or drought or something.

0 ( +0 / -0 )

Deflation is great because it makes people reflect on the needs of the one over the needs of the masses. If you do not need something, why the heck would you buy it?

I don't think I follow your logic at all and I would be surprised if anyone else could either.

We have deflation in electronic goods - does it make you reflect on the needs of one over the masses?

4 ( +4 / -0 )

Four days into gw and Ive spent a grand total of 15,000 on food ,alcohol and a bbq. a regular year as a family of 4 we would have spent 50,000 by now.

With everywhere closed it's hardly surprising the economy is in freefall.

2 ( +2 / -0 )

@comanteer

why not print more?

More than what? The BOJ govt bond purchases are now "unlimited," according to last week's announcement.

1 ( +2 / -1 )

More than what? 

More than the 100,000 yen one time payment. Give everybody a million yen, every month

0 ( +1 / -1 )

The price of cabbage has rocketed means I need alternative ingredients for our weekly Okonomiyaki.

Give everybody a million yen, every month

There ain't enough yen printers for that.

¥150 trillion x 12 =¥1,800 trillion.

-2 ( +0 / -2 )

Good news. Inflation makes things more expensive for me.

Ya but if you have less cash in the bank then your purchasing power won't change.

0 ( +0 / -0 )

When the market finally works this out, the Yen will depreciate markedly, and "falling prices" will no longer be a problem.

The "market" has had three decades to work this out and still hasn't. How long are we going to give the market to get its act together?

The alternative is that money can be printed within reason to counteract a depressed economy. This may annoy a number of monetarists, but the evidence of Japan supports this.

0 ( +0 / -0 )

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