politics

Japan at critical stage in beating deflation: gov't

13 Comments
By Linda Sieg

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All this talk of beating inflation masks the fact that the only reason inflation is necessary is that the government's overspending on corporate welfare and unproductive infrastructure projects drives up the debt burden and inflation decreases the cost of borrowing. How can making most people poorer be a sign of a healthy economy?

9 ( +12 / -3 )

We won't see inflation until we don't want to see it.

In the 70's countries were struggling to come to grips with inflation, and doing everything they could to get it under control. But then again sovereign debts in the 70's are a slight fraction of what they are now, and governments could still service their debts even at the higher interest rates of the time. But a few decades of vote-buying by politicians has changed the fundamentals, debts are larger, and taxes are greater, while at the same time populations are falling, and outside competition is increasing.

Deflation is caused by an unnaturally high cost of living, just as declining birth rates are. Left alone, prices would fall to the point people would feel comfortable spending, and growth would return. But deflation increases the weight of the government's debts, and makes repaying these debts more difficult. The government is not addressing the cause of the problems, it is addressing the effect, it is throwing water on the smoke, and not the fire.

3 ( +7 / -4 )

Inflation will only "arrive" and continue once overall property value increases (land/buildings). It is by far the single largest factor in GDP (over 30%). But most cities and towns are already way overbuilt, and with a declining population creating lower demand this is unlikely to be sustainable in the long term.

In the near term, a recent law that penalizes vacant/abandoned structures by increasing their property tax by 500% was aimed at pressuring owners into removing these structures (for not just the reason of reducing the oversupply, but for safety and aesthetics as well). However it is starting to have an opposite effect with owners offering up lots of these places at a bargain, and in the countryside some can be found nearly (or actually) free since demolishing a house is pretty costly.

So even though many other consumer/food items are certainly more expensive now, the lack of property inflation will always offset those increases in terms of overall GDP.

0 ( +2 / -2 )

Falling oil prices? Hey finance ministry, oil is paid for in what currency?

-1 ( +1 / -2 )

The report said Japan was making steady progress towards ending deflation, noting that the Bank of Japan’s massive asset purchases had lifted inflation expectations, an important step to creating price stability.

They have been saying this same nonsense for three years now. Meanwhile, the real trith about the Japanese economy is buried in the second to last sentence of the article:

Despite a year or so of cheaper fuel prices, no definite sign of a sustained increase in consumption has been evident.

And further supported another article in the business section talking about how Japan's economy actually shrank in the last quarter:

Japan’s economy likely shrank in April-June as exports slumped and consumers cut back on spending, a Reuters poll showed, boding ill for Prime Minister Shinzo Abe’s policy drive to lift the economy out of decades of deflation.

How long are folks going to continue to be fooled by the slick LDP/BOJ PR machine? Doesn't anyone -- NHK, Asahi, someone -- actually dig into the numbers and report the truth?

0 ( +4 / -4 )

warispeace, government overspending is to the tune of 40 trillion yen per year, and the vast majority of that is not being spent on corporate welfare, if you check the budget numbers. Otherwise fair comment!

-1 ( +1 / -2 )

Japanese properties were available to foreign investors, yet not a very welcome response. Japan doesn't welcome immigration and it is doubtful how this country can beat deflation for long term.

2 ( +4 / -2 )

fxgai, it depends on how you define corporate welfare. For instance, a lot of health insurance costs related to prescription drugs people are given that they don't need I would define as corporate welfare, as is a lot of military spending. Some of the grant money to local governments also ends up being used for wasteful projects that benefit businesses.

6 ( +6 / -0 )

Deflation is healthy. It shows that consumers do not need any more junk and have no place to put it.

-1 ( +3 / -4 )

Deflation is, IMO, also a sign of technological progress. Look at the fairly unregulated consumer electronics industry: over the past 30 years the prices for computers/cellphones/etc. have plummeted and their capabilities have increased dramatically. Also look at automobiles: power, reliability, and safety are up, prices are up but nowhere near as much as their objective utility/quality has improved.

When you improve your methods for making things they should get cheaper (all other things being equal). If your technology is improving but prices are still rising......that's a good sign that someone is trying to rob you blind. Inflation is the financial/banker class doing their damnedest to rob Main Street.

5 ( +5 / -0 )

it depends on how you define corporate welfare. For instance, a lot of health insurance costs related to prescription drugs people are given that they don't need I would define as corporate welfare,

Hmmm, so if the government cut this "corporate welfare" spending, what would happen to its political opinion poll ratings, and would the 40 trillion yen budget deficit be resolved because of it?

0 ( +1 / -1 )

Deflation is NOT good for a country. It means no new companies will be founded, new homes or apartments won't be built, because we're all better off waiting and doing these things next year, or not at all. It took me 3 years to finally sell a property in Kariuzawa, and the price we got was half what we paid for it ten years ago. Do you think I'll ever buy property in this county again? Yet my home in San Diego has more than doubled in value in the time I've been here, so that's where my economic focus will flow in the future.

-2 ( +0 / -2 )

@PeterPayne

Deflation is NOT good for a country.

It worked out pretty well for the US in the late 1800's: https://en.wikipedia.org/wiki/The_Great_Deflation

It means no new companies will be founded, new homes or apartments won't be built, because we're all better off >waiting and doing these things next year, or not at all.

Sometimes doing nothing is the best course of action. Inflation, however, forces a perpetual growth ideology which will prove unsustainable on a planet with limited natural resources. It also slowly robs the populace of their wealth by eroding their purchasing power. This has a disproportionate effect on the bottom 90% of the population that rarely possesses investment assets that generate revenue or capital gains.

Re: house prices. Kariuzawa looks to be in the mountains near Nagano. Given Japan's demographic trends (i.e. declining demand), why would you expect a quick and profitable sale of this property? Look at the data for per capita GDP growth in the San Diego area ( https://research.stlouisfed.org/fred2/series/SAND706PCPI ), as well as population growth for the same. Neither justifies a doubling in residential asset prices.

Every other physical asset class loses value annually to depreciation (factory equipment, automobiles, cargo ships, etc.). But house prices should skyrocket? Why? It's obvious the prices are not indicative of actual housing demand ( http://www.zerohedge.com/news/2015-07-28/us-homeownership-drops-48-year-low-median-asking-rent-rises-new-record-high ), and exist solely to prop up a financial system (and government property tax system) that is fixated on the false idea that residential properties represent a store of wealth or an revenue stream (via something other than rental income) ( http://www.zerohedge.com/news/2014-05-08/all-not-well-housing-market-all-cash-buyers-double-past-year-hit-record-high ).

0 ( +0 / -0 )

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