Group items tagged

Deflation has really destroyed Japan's economy. Japan is in even more trouble, especially due to its debt and graying population. Western powers fear that the same fate is in store for them, especially if they are unable to stimulate their economies.

Currently, Shinzo Abe is the most popular prime minister to date and Liberal Democratic Party leads a coalition which has the majority of the Diet's lower house, but he is in talks to dissolve the lower house and have a snap election. Abe promised to end the heavy deflation that has plagued the Japanese economy since the 90's, but since he has come in, the sales tax has increased from 5%-8% and is threatening to rise to 10%, to make up for the deflation of prices. Unfortunately, right now, the way the lower house is set up, postponing this tax increase would cost Abe the support of big businesses and senior bureaucrats. The governor of the Japanese National Bank, Haruhiko Kuroda, believes that raising the tax only stands to help Japan ease its national debt which currently stands at 240% of the GDP. Kuroda fears that if the tax is postponed, Abe will lose credibility with the people, since he promised he would work to fix the Japanese debt problem. Sadly, though Abe promised to bring growth to the economy and mandate his ways to serious economic structural reforms, the majority of his ideas are still sitting soundly in square 1, even with support from the leading coalition in the Japanese Parliament. The only lucky part about this for Abe is that the opposition parties are facing scandals and are not ready for a snap election, so Abe could gain the support he needs to get his ideas moving in the right direction.

I can't seem to stay topical but this relates to last weeks discussion of macro economics. part of the point of the article the though is that by talking and thinking about deflation, means that it will actually occur. It was what set Japan back in the 90's and the Fed is worried that after fighting inflation for years that everything might turn around.

The Japanese economy was stagnant from 2002 to 2012. In 2012 Shinzo Abe became Prime Minister, and Haruhiko Kuroda was appointed as the new governor of the Bank of Japan. Abe and Kuroda came in trying to increase inflation from -0.3 percent to 2.0 percent because Japan has seen slow deflation in the 10 years between 2002 and 2012. Questions about the ability of a central bank to increase inflation without increasing national debt, or will money just be pumped into the economy and push the debt crisis further along. Abe and Kuroda hope that the weakened yen will improve Japan's company competitiveness by lowering the cost structure for companies allowing them to produce cheaper products to be consumed in the market. Japan hopes that slowly the price of goods will increase at about 2% a year and hope to see the debt to GDP ratio decrease.