politics

BOJ to consider 2% inflation target as Abe turns up heat

22 Comments
By Leika Kihara and Stanley White

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More money means lower interest rates. So basically the government is telling all the folks who've been shoveling Yen into their Japan Post accounts over their lives, the government is going to start reducing the value of their savings by 2% a year.

The people have made a RATIONAL, personal decision to save their OWN MONEY.

And now the government is trying to FORCE THEM to spend it by ARTIFICIALLY INCREASING the prices of everything.

Their "plan" is to force people to buy things they don't really want ONLY SO they don't lose their savings due to inflation.

The sad thing is most people will think this is a good plan.

To be forced to spend their money that they CHOSE TO SAVE.

Think about that. The best plan the government can come up with is to create a situation where people feel compelled to spend as much of their money as they can, before it loses its value.

Of course, the government gets to print up a bunch of fake money they can use to build more bridges that go nowhere, but that's another story.

Who are the criminals in this country? The government? The Yakuza?

-2 ( +3 / -5 )

2% inflation equal to 4% deflation (please do not ask me to prove this theory), national debt figures will speak for themselves.

-5 ( +1 / -6 )

@ Gaijinfo... Not sure I understand your logic here... And I am not even sure you do either...

If the BOJ is even able to achieve 2% inflation (keep in mind they can't even accomplish 1% for nearly two decades) they will flood the system with Yen, making it weaker. Now, I am sure you have heard what a strong Yen does to Japanese companies right? If I am Toyota and I sell a car in the US in dollars when the exchange rate is 85Y:1USD then I can expect to only receive 85Y per $1 when I repatriate the funds back to Japan (meaning brining the dollars back and converting it to Yen) I will receive less... If Abe is able to cause 2% inflation, then the Yen will weaken and be more on parity or possibly in a favored exchange that allows them to make more... This is why there has been massive layoffs, no profits, and a huge strain the past 2-3 years on Japanese manufacturers due to their reliance on exports. A weakening Yen is in Japan's best interest...

As far as the gov't making you spend your money, think again... Japan has been idle and at times in a stagflation economy for the better part of 20 years. Part of that problem is the Japanese not spending. It creates less sales tax revenue to pay for the immense social programs Japan has for its people, not to mention helps pay fo infrastructure projects, and lastly helps pay down Japan's enormous debt (debt to GDP is a staggering 200% and to compare to a struggling country, Greece has 180%)...

Now factor in an aging population who will rely more on social programs and a shrinking workforce to pay for it and you tell us how Japan is going to cope with this pressure? If Japan continues to run such high debt to GDP, the rating agencies will downgrade Japan and the BOJ will have no choice but to pay higher interest on new issue Samurai bonds due to more risk in investing in Japan.

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What Abe should do, is allow women to work more and reduce immigration policies, making it easier for foreigners to work in Japan. This would create more tax revenue for the BOJ to pay down Japan's enormous debt... Encouraging spending will help Japan in the long run... So instead of saving, perhaps Japanese should begin spending so the Japanese gov't can stop their spending and begin to pay down this debt...

Otherwise, Japan will have to look to foreign investment to buy Samurai bonds and they will want a lot more in interest than the Japanese who make up the bulk of buying now...

-1 ( +1 / -2 )

Encouraging spending will help Japan in the long run... So instead of saving, perhaps Japanese should begin spending so the Japanese gov't can stop their spending and begin to pay down this debt...

Spending should be responsible. The problem of Japan pro long recession was a twin engine bubble of Stock market and Real Estate Market in 1991. Over investment and spending on that sectors again will make chronic debt which can never be repaid. Even Japan increase the immigration or increasing the public spending, economy will never fully recover. The reason is Japan is still expensive and less competitive. It is a the structure problem. Not can be fixed with surgical cut.

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Ah so...

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@doublehelix

finally! someone who understands some basic financial sense on this website. While I don't agree with Abe's social views, 2% inflation will not only help the economy based on the curbing of the Yen, but speculators who are driving the market will factor in his political stance and help to ease measures as well. As I've said before, 100Yen - 1USD by the end of January. Book it!

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1USD by the end of January.

That seems a little optimistic, but 1=100 by Summertime, I would subscribe to that view. Buy your dollars and get rid of your Yen ASAP!

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Clearly a powerful drug. Can't be shortsighted and has to go hand in hand with all other measures such as clearer industrial growth strategies, deregulation, corporate tax cuts, possibly getting a good deal out of the TPP or EPA discussions etc. Abe is being advised by mastermind economist Yoichi Takahashi who is under the strong belief that printing more money is the solution to many of Japan's problems and what has to some extent helped stabilize the economy in 2002-2007 when he advised Koizumi and Abe at the time, which of course is arguable for many. He is also advisor to Hashimoto. A lot of debate is certain to arise on this amid fears over another bubble/hyper inflation or worsening economic disparity but at least they have a plan on the table for discussion.

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they hope to stave off threats by Abe of revising the BOJ law guaranteeing its independence.

Scary. Abe is already threatening to use his 2/3's majority to upset basic economic principles. Having the BOJ be subservient to the politicians, especially as quckly as Japan changes PM's, is a recipe for disaster. This on top of his comments that he also wants to revise Article 9 of the Constitution. He's dangerous. China does not need to threaten Japan. Abe's policies may well bring the country to its economic knees, so they can swoop in and buy up everything at bargain prices in a couple of years. Hold on tight you folks in Japan its likely to be a bumpy ride.

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I can see most of the posters here are under the spell of magic money. Inflation is only good for the government, nobody else. It ruins people on fixed incomes, and it slowly depletes the value of saved yen.

The people who are now retired will be MORE dependent on the government than ever before, because of the decreasing value of their Yen.

As far as this being a magic fix for exports, you're conveniently forgetting that Japan has to buy it's raw materials from somewhere. As the Yen weakens, those Raw materials will be more expensive in terms of Yen. Which means they'll need to raise the prices of the final goods in Yen, in order to make up the difference.

This is nothing but political flim flam. And you Keynesians are buying it hook, line, and sinker. Inflation has NEVER worked to stimulate an economy, and it never will.

All it will do is erode the value of people's savings, people's incomes (as I doubt employers will raise rates to match inflation) and give the government MORE MONEY to waste.

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@gaijinfo

You are actually absolutely right!!

-1 ( +0 / -1 )

@gaijininfo You are right that a weak yen will make the raw materials that have to be imported more expensive from Japan's viewpoint. The good news, however, is that raw materials are only a fraction of the price of the final product, so OVERALL being able to sell more cheaply, thus selling more, is still a good deal for all Japan.

As for 'ruining people on fixed income', in a way you are right. On the other hand, 2% is still a very gentle inflation by international standards. I'll prefer to get the economy moving and see if the company will hand out a raise.

0 ( +0 / -0 )

I'll prefer to get the economy moving

There's the rub. Inflation DOESN'T get the economy moving. That's only a theory, one that has never worked.

0 ( +0 / -0 )

It's always funny to see that some people still believe that by just doing some monetary easing, the economy will then magically move up. This is just utopia and it's a shame that Japanese politicians are stupid enough to believe that. They tried in the past and it never worked (and it seems that Japanese have a quite bad memory). It may just show some positive signs in the short term but it has always failed in the long term.

Now creating this sort of inflation by currency devaluation is not something that any serious economist is advising to Japan. It increases the cost of importation, particularly now with the high cost for importing energy and in fact the benefit of the yen devaluation to improve the exportations is actually rapidly erased out by the cost of importations. Particularly now when more than half of Japan exportations are towards Asia where the deals are made in yen and not in dollars. Whereas energy related importations are in dollars. Easing the yen and creating this inflation is therefore not the solution. Japanese bureaucrats still live in the nineties and are still obsessed for easing the yen. They are just stupid, sorry.

And it's pathetic to think that by just creating this inflation and spending trillions of yens in public works will put Japan out of its depression. Again they tried over and over the same thing before, look at where Japan is now. Half of the country income is used to pay the debt interests alone. This is madness.

What Japan needs is surely not some patchy measures which never work and are imagined by old dudes disconnected from reality. Japan needs reforms, profound reforms. It needs to reform it's working force that has lost efficiency and create a better working environments for people to enjoy their work and be productive. And not this horrible system that drives people to depression, suicide and sadness because they are forced to live in a job system out of age.

Japan needs to rebuild its working force and the only solution if it doesn't want more foreigners is to reform it's social system so that people can start to think that it's worth to have children in this country and not that it will ruin them. This country needs to start to respect its women by proving them the right to work and rise their family. Recent studies have showed that more women in the work force would increase Japan GDP by as much as 16 %. Japan can't continue to ignore the issue by which the current pension system is totally ruined. Increasing the inflation won't fix it and Japan needs to fix it because otherwise the country will end up having tremendous difficulties to sustain basic social protection for its people. Japan need people to work and be innovative. If you are innovative, you create innovative products and services that you can sell. Japan big electronic companies are struggling not really because the yen is strong. They are struggling because they lost ground to foreign competing companies. They did that because their working force is not differentiated enough, not productive enough, not talented enough.

For that reason, Japan needs to reform its high education system so that people learn to think by themselves instead of being obeying robots. Japan needs people who can communicate in English for high technical work and people must deserve their PhDs and engendering degrees. This is just shame how Japan came to deliver so much PhDs to people who don't deserve it. Japan needs to open itself to foreign inputs and talents and stop pretending that it can't be this isolated island with isolated people that fail to understand the world and still make it in a global economic world. Instead of being hypocrite by ignoring the foreign talent and creativity, it must accept that people outside Japan can help Japan.

Japan needs to clean its system of bureaucrats and build a real democracy. Without a real democracy, people will just be forced to vote again and again for the same people who drive the country to disaster. Japan needs to clean itself from this disgusting corruption that has eroded the country for decades. This is essential to cut the incredible waste of money that Japan is known for and also this would prevent the population from being threatened by some nuclear disaster all due to poorly managed and corrupted companies.

And the list goes on.....

Japan's debt has probably reached a point of no return, the numbers are so huge that they don't make any sense any more. And excuse me but believing that the solution for japan is inflation is just denying the reality.

By the way, 2% may not seem high but this is already significant in a country with already high prices and revenues that have not moved up for a long time.

-1 ( +0 / -1 )

Sorry for the mistake in typing, I meant of course engineering degrees.

-1 ( +0 / -1 )

Inflation would be a good thing for Japan but I agree with some here stating that it could be detrimental as well... If inflation moves higher than as somebody posted, will raise prices on goods and raw materials to make goods. Thats why a number of Japanese companies have been investing heavily in other companies and countries while the Yen is in their favor. Look no further than Myanmar for this...

Having some form of inflation translates to a good thing becuas it shows growth in an overall economy... Too much puts a burden on people but we are talking about developed Japan, not Indonesia. Major differences because Japan is developed and Indonesia is not, therefore when prices go up, it impacts an Indonesian much more than a Japanese person. The bottom line is every country needs inflation, it just cannot exceed a level where it becomes aburden. A 2% target is not very much and frankly, is a stretch by Abe anyway, considering they can't even lock in a 1% target.

0 ( +0 / -0 )

(Cont'd) Weakening the Yen will help this but everyone knows Japan is not able to weaken their currency alone and will need the help of others to sell it off as well. Japan has tried this a number of times since Fukishima and while they moved it temporarily, it did not last long. The problem is that too many foreign investors want to own teh yen because of Japan's self investment in samurai bonds... The fact that most of Japan's debt is owned by Japanese is a positive to outside investors trying to pile into the Yen, creating demand and making it stronger...

If japanese begin selling their yen and lets say buy up USD, than the Yen weakens, Dollar strengthens and the Japanese can convert back to yen when it is much weaker. A profitable stratedgy and a main reason why the Japanese should be doing this.

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Bottom line is if Japanese begin spending, the BOJ starts paying down debt, a slight inflation (lets say 2%) occurs, the economy will begin to grow... The Yen can weaken, helpijng exports and manufacturers. Somebody pointed out that imports would hurt due to a weakened yen and it will. However, Japan is not exactly known for importing goods because the Japanese are notoriously known to buy Japanese made goods only. The products they do import are natural resources and components to manufature goods for export (think electronics)... Smart companies were out there buying up supplies and signing LT contracts to do so while the Yen was strong. If they did not take advantage of a strong Yen, well that is their fault. They shouldn't have been asleep at the wheel.

I do not think the BOJ and Abe will be able to do it all themselves, but as a keynesian, I do think they should play a roll... The reality though is that it must come from the Japanese themselves. Go out and spend some money, prices are not going to get any lower than they have so why wait? A cuilmination of what I previously posted would help Japan and the Japanese to return to the top again... but they can't rely on the BOJ and gov't to do this alone... It must come from spending!

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@ daito... You are 100% correct on stating reforms need to happen... I wrote in my original piece about the effects of loosening immigration or better yet allowing women to work. I thinhk Japan right now as it stands is one of the worstr countries in teh developed world as far women in the workplace...

I know "change" never goes over well with Japan but for it to survive and stay relevant, its going to have to! All of its neighbors and key trading partners continue to get stronger but Japan remains idle...

There has to be reforms and major changes in thinking, policy, and culture to some degree... The BOJ and Gov't will not be able to do this alone, if at all... It needs to be a culmination of everything!

Ganbare Nippon!

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Lastly, My apologies for al the misspellings... I am writing this while at work and obviously didn't proof before submitting... My apologies...

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@Gaijin,

You do realize inflation is a healthy right? Every nation needs inflation... Sorry to burst your bubble but when you can show me a strong economy with zero inflation and I will think differently...

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