Please consider Japan Finally Concedes Its Crazy Low Prices Can’t Be Beat.
Japan has virtually given up on reaching 2% inflation after nearly six years of trying. An argument gaining ground in Tokyo holds that the inflation goal, once seen as paramount, doesn’t matter so much after all. Inflation excluding volatile fresh food and energy prices was just 0.3% in November, and it has barely budged all year.
Mr. Abe has largely stopped discussing the dangers of deflation, and his government is actually trying to push some prices down ahead of a tax increase set to take effect in October 2019. Mr. Abe’s de facto No. 2, Chief Cabinet Secretary Yoshihide Suga, has called on mobile-phone carriers to lower fees by about 40%—a move that could knock a full percentage point off inflation, according to government estimates.
“There is no change to our stance of seeking the 2% price goal as soon as possible by patiently continuing powerful easing,” Mr. Kuroda said at a November press conference. At the same time, he has started talking more about the potential downsides of aggressive monetary easing,
Still, BOJ officials are hesitant to abandon the target altogether out of fear it could damage expectations and push the country back into deflation, said people familiar with the BOJ’s thinking.
Raising Prices
Torikizoku (Chicken Nobility), raised prices for the first time in 30 years last year, by the equivalent of 16 cents.
“Once prices went up, it wasn’t just the chickens that got skewered. Same-store sales at the chain have fallen more than 5% every month since May and profit fell 76% compared with a year earlier in the most recent quarter.”
Abe now wants mobile-phone carriers to lower fees by about 40%, a move that could knock a full percentage point off inflation, so it can raise taxes.
Price Stability
The BOJ does not officially want to abandon its inflation target. And BOJ predecessor, Masaaki Shirakawa says “What is more important is…to aim for sustainable price stability in the medium to long term.”
Japan is the one nation that seems to have a modicum of price stability. It doesn’t want it. Heck, it does not even seem to know it has some stability.
The Fed defines stability as prices forever rising.
This is all straight from the Twilight Zone.
What’s Coming?
I do suspect that at some point these sorts of financial shenanigans will “succeed” beyond Japan’s wildest expectations with Japan intervening to stop massive inflation.
All it will take is an attitude changes that’s arguably long overdue.
For discussion, please see Japan’s Red Queen Race.
Mike “Mish” Shedlock
Inflation creates money with lower value. Deflation creates money with greater value.
The government wants to devalue money in order to pay off debts with cheaper dollars while cheating me.
I would prefer deflation which means that my money is more valuable tomorrow than today.
Japan is simply proof that a Central Bank can not “blow bubbles” as easily as some seem to think. They are not powerless, but their power is not as great as many imagine it to be.
Japan has been trying to inflate its economy for 30 years and we see the results.
With a government gross debt to GDP ratio of 253 percent, Japan has the unwanted title of ranking highest in the developed world. The recent budget requests by Japan’s central government ministries and agencies for fiscal 2019 total a record-high 102.77 trillion yen.
Japan’s trade balance has again swung into deficit territory and a matter that has not garnered enough attention is how the economic problems that continue to develop in China will most likely spill over and affect Japan. The article below delves into these issues.
One way inflation may occur is if they start running a persistent trade deficit and the yen starts to weaken.
I have not seen an explanation as to why the actions of Japans central bank have failed to produce inflation. Every action they hav taken along with massive govt deficits should in theory stimulate inflation. These actions in the US certainly has. It just isn’t reflected in the statistics generated by the monetary politburo.
Japan is a country of old CFs. My parents are old CFs, and they don’t crack open the wallet for anything. They have a net worth of about a million dollars or so but dad still carries a 10 year old flip phone and last year when mom bought a smartphone she didn’t want a refurbished iPhone 6 despite my recommendation (I’m the family tech support) because it was too much money. They buy used cars without any extras. Dad wears clothes from Goodwill and socks with holes in them. When I tell them to do something with the money they earned they shrug and say they don’t want to do anything (and besides, so-and-so had to go into a home and that’s really expensive and we don’t want to burden you and your sister…).
Now imagine an entire country of people with that mindset. Any time there’s more money out there they just save more money. They don’t buy on credit. They don’t buy at all. They take vacations by traveling to see the grandkids, not seeing the world.
And I suppose they’re happy.
CFs? I wish they would blow their HUUUUGE 1 million dollars then expect you to care for them when the inevitable happens.
Socks with holes? Yeah, probably could buy a few pair. Smartphone? Why bother.
You should be thankful that they are thinking that far ahead so as not to burden YOU. What a spoiled LF you are.
Sound like great people and some old folk I know in the UK & Italy that remember true austerity through and post WW2. If only we had more of that attitude the world economy might be smaller but with less debt and more resilience.
Spot on. People who’ve experienced war & famine are of a different mindset. We can learn from them. We can’t take it with us but why burn through it without care? We can always pass it on to loved ones or if none exist then give to charities.
Inflation happens when the working class’s wages are growing faster than the economy’s ability to produce. Japanese QE hasn’t had an appreciable effect on wages (because that’s not where its targeted), and China can produce enough of everything for the world. Hence, no inflation.
The same holds in the US except for a few key areas: housing in high-value locations (NYC, DC, Cali), higher-ed due to outsourcing funding to banks through loans, and healthcare due to lack of price transparency. The Japanese are too smart to allow these things in their country. American IQs are, um, not so high.