Has the BOJ abandoned the 2% inflation target?

It certainly looks that way to me.  Last year, the BOJ came under increasing pressure from officials in the Abe government, who advocated lowering the inflation target to 1%.  At the time it looked like the BOJ was ignoring this pressure, but now the signs of a switch look unmistakeable.  Japanese NGDP expectations are almost certainly declining, as the yen soars in value and Japanese stocks plunge. Negative interest rates are another bearish sign.  FT Alphaville has an interesting report:

The upcoming 27-28 April BoJ meeting is likely to push the authorities into finally admitting a plan to consolidate the JGB holdings into perpetual bonds alongside a formal move away from inflation targeting to nominal GDP targeting. There is a growing realization that there are effective limits to how much more JGBs can be acquired…

Although there is certainly room for deposit rates to be dropped further into negative territory and possibly the BoJ acquiring local government debt, there is growing realization that at some point the BoJ is likely to announce a ‘tapering of JGBs’ towards the end of 2016 or early 2017…

I’m skeptical that they will switch to NGDP targeting, or at least NGDP level targeting, which is what they really need. Perhaps Kuroda will pull another rabbit out of his hat, but I don’t think it’s likely.  If it was likely, the yen never would have appreciated so strongly.  Given that the current inflation target is not credible, it would be rather pointless to switch to NGDP growth rate targeting, which would be equally lacking in credibility.

What should Japan do?  I suppose they should do whatever they want to do.  It doesn’t make much sense to target inflation at 2% if you don’t want to target inflation at 2%.

The more interesting question is what should they want to do?  I’d say NGDPLT. But they seem to have other ideas.

Either way, we should have an answer by the end of the month.

HT:  Tyler Cowen

PS.  Here’s the dollar (in yen terms):Screen Shot 2016-04-07 at 2.47.32 PM

And here’s the Nikkei:Screen Shot 2016-04-07 at 2.46.48 PM


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42 Responses to “Has the BOJ abandoned the 2% inflation target?”

  1. Gravatar of H_WASSHOI (Maekawa Miku-nyan lover) H_WASSHOI (Maekawa Miku-nyan lover)
    7. April 2016 at 12:20

    It seems no one is saying gov debt tapering thing.I think that (tapering) perspective is useless for Japan at this time.

    Abe’s brain knows NGDPLT. Already it has been announced “600 trillion yen” NGDP target.

    I perceive markets overestimate the possibility of the CT increase undergoing “inflation target”.

  2. Gravatar of Haruhiko K Haruhiko K
    7. April 2016 at 13:45

    Scott,

    What if they don’t do anything? What If they just continue to buy 15% of NGDP per year of JGBs and run budget deficits of 5% per year? What will happen? The BoJ has about 1/3 of the JGBs right now so it would take them about 6 or 7 years at this pace to own them all. If the central bank, which is part of the government, owns all the debt and the inflation target is still not credible, isn’t the fiscal problem solved?

    But if the BoJ is doing this while interest rates are rising in the US can USDJPY keep falling?

    I guess what I’m asking is, can a country with 230% debt/GDP print its own currency and buy up all of its own debt and have its central bank effectively hold it forever, therefore reducing its long run fiscal burden and have its currency appreciate in real terms? Can inflation expectations and QE stay disconnected forever? I can’t see the equilibrium here! Help!

  3. Gravatar of Postkey Postkey
    7. April 2016 at 15:11

    “What should Japan do?”

    “Credit and growth
    Werner (1992, 1997, 2005, 2011b), using Japanese data, shows that credit for GDP transactions explains nominal GDP well over several decades, while alternative explanatory variables (including interest rates and money supply) are eliminated in a reduction from a general to the parsimonious specific model.” P23.
    http://eprints.soton.ac.uk/339271/1/Werner_IRFA_QTC_2012.pdf

  4. Gravatar of Kgaard Kgaard
    7. April 2016 at 15:31

    The yen’s appreciation against the dollar has come against the backdrop of dollar depreciation against gold. So, if you look at yen/gold over the past three years or so it is basically flat. I’ve gotten very long Japan stocks on the thesis that the yen/gold price is giving you a truer read on the situation — ie Japan is not headed into some sort of liquidity vortex, and domestic economic activity should remain strong. I Could be wrong though … Am very curious to see how construction firms’ new orders come out in the March quarter …

  5. Gravatar of Benjamin Cole Benjamin Cole
    7. April 2016 at 16:17

    Excellent blogging.

    Scott Sumner may be more right than he knows.

    What makes any of us think that developed-world central bankers will hit NGDPLT targets?

    Central bankers in the decades after 1980 showed stalwart resolve in wrenching down inflation. And, of course, it was and is the only topic of conversation when central bankers convene.

    In contrast to the iron will shown in killing inflation, in Switzerland, Japan, and the U.S., central bankers have feet of clay when it comes to fighting deflation and slow growth.

    Given that reality, I think it is time to seriously consider the proposals of Michael Woodford that QE be mated to fiscal stimulus, such as tax cuts.

    In short, print money to run the government, or pay down debt.

    If that does not work, at least the population gets the benefit of tax cuts or reduced national debt.

    In conclusion, as I always say, let it rip, print money and after a couple years of Full Tilt Boogie Boom Times in Fat City, then wake me up and we can decide what to do next.

    Central bankers should just hold their noses at the years of prosperity.

    And please, no sanctimonious sermonettes from little boys in short pants on The Perils of Inflation.

  6. Gravatar of dtoh dtoh
    7. April 2016 at 21:37

    @scott
    It seems to that in the case of Japan, we’re looking at a slightly different transmission mechanism for monetary policy.

    Normally you would expect CB asset purchases to result in higher AD either through increased exchange of assets for goods and services or the HPE (depending on how you want to describe the mechanism.)

    However, in the case of Japan the systemic barriers to increased AD (e.g. high taxes, regulation, etc) means that when Japanese financial institutions sell assets to the BoJ, instead of buying new domestic assets (loans to firms, new home loans, more credit card receivables, equity investments, etc.), instead they replace the assets with foreign assets. This drives the yen down and generates export led real growth and import driven inflation.

    As long as the BoJ allows (encourages?) the yen to keep falling, this could be sustainable for quite a while, but I’m not sure what benefit there is for Japanese living standards. Maybe they should be targeting NGNP.

  7. Gravatar of JP(wh)Y? revisited. And a break in the currency wars? JP(wh)Y? revisited. And a break in the currency wars?
    7. April 2016 at 23:32

    […] links:Has the BoJ abandonded the 2 per cent inflation target? SumnerJPY, it wasn’t meant to be this way – FT AlphavilleJapanese banks don’t like something […]

  8. Gravatar of dlr dlr
    8. April 2016 at 04:32

    I’m skeptical that they will switch to NGDP targeting, or at least NGDP level targeting, which is what they really need.

    But isn’t there an argument that Japan has already tried to switch to NGDPLT? Shinzo Abe made a big announcement last September a “clear” target of 600t nominal GDP. Sure, people were briefly confused about the time frame, but then he came out with 2020. The five-year time frame was reported all over Japan, with a bunch of quotes from the private sector about how absurdly ambitious it was. So it’s hard to say he didn’t set a level target. Now, Abe is not Kuroda, and it’s not hard to imagine a more effective version of communicating both the target and the intended policy actions to enforce the target.

    But it’s also true that Kuroda/Abe are close to being thought of as a two person CB in Japan, and Kuroda has obviously been doing a lot of stuff to try and boost nominal growth, even without a strong NGDP target. Combining the $600t by 2020 with Kuroda’s policy behavior looks like it should work better than it has. You don’t consider this a sign that credibility in target setting might be harder than you imagined?

  9. Gravatar of ssumner ssumner
    8. April 2016 at 05:35

    Wasshoi, So why isn’t the BOJ taking the steps required to hit the 600 trillion target?

    Harukiho, I wish I could help you but I can’t see a clear outcome either. There are lots of possible equilibria, but continued low rates and low NGDP growth seems the most likely.

    dtoh, You said:

    “However, in the case of Japan the systemic barriers to increased AD (e.g. high taxes, regulation, etc)”

    It seems to me that this would reduce AS, not AD.

    dlr, It’s not at all clear to me that Abe’s comments should be viewed as a monetary policy target. If so, why was his administration encouraging Kuroda to back off from monetary stimulus, and reduce the inflation target? I see no sign at all that the BOJ has a 600 trillion NGDP target. Have there been any comments to the effect that they do? And if they do, why aren’t they taking the sort of steps that would be required to hit the target?

    I see Abe’s statement as more an aspiration for higher RGDP, given the BOJ’s inflation target. (Which of course he’ll fail to achieve.)

  10. Gravatar of James Alexander James Alexander
    8. April 2016 at 05:43

    Scott, slightly OT but excellent piece by Tim Duy on Yellen and her “is it a ceiling or no” issue. Market implies that Duy is way too charitable in his conclusion.
    http://www.bloomberg.com/news/articles/2016-04-07/so-just-how-much-of-an-overshoot-on-inflation-will-the-fed-tolerate

  11. Gravatar of Dan W. Dan W.
    8. April 2016 at 07:00

    What does the prisoner dilemma say about the attempts of central banks to devalue their own currency? I wonder if it might be better for nations not to boast of future devaluations but to be more coy and not invite competition.

    In any case, the example of Japan ought to temper enthusiasm that a nation can fully control the value of its currency. Yea, I know the Monetarists can say Japan did not try hard enough. That excuse always works, whether it be in sports or politics. Yet clearly whatever Japan was trying to do it the results were not coming easily.

    And Benjamin, I love your full-tilt, no holds barred optimism for money printing. But I have to ask. Why pay down debt? Why not simply cancel it and have the Treasury exchange the defaulted notes with new, government backed ones? Debtors are freed from debt. Lenders lose no money. Everyone wins!

  12. Gravatar of dlr dlr
    8. April 2016 at 07:19

    If so, why was his administration encouraging Kuroda to back off from monetary stimulus, and reduce the inflation target? I see no sign at all that the BOJ has a 600 trillion NGDP target. Have there been any comments to the effect that they do? And if they do, why aren’t they taking the sort of steps that would be required to hit the target?

    All good points. Kuroda actually gave an unintentionally funny quote when he said that the target was “challenging but doable” They’re not exactly Kennedy promising the moon over there. So unless you’re willing to cheat and say that Kuroda and Abe are really co-BOJ chairs, then you just can’t say this is the CB target.

  13. Gravatar of Ray Lopez Ray Lopez
    8. April 2016 at 07:43

    Hat tip: Tyler Cowen, from three years ago. Pretty much says it all on Japan, and pretty much rebuts anything Sumner says…

    http://marginalrevolution.com/marginalrevolution/2013/04/some-thoughts-on-recent-japanese-monetary-policy.html (“Are we actually to believe that after decades of slow growth, nominal wages remain too high, even though most individuals have retired, changed jobs, died, changed job descriptions, and so on? Wages do eventually get reset, even in sticky wage models. The conditions of jobs change even when the nominal wage doesn’t. So why should the notion of sticky wages be very relevant here? … An alternative is that money will boost real economic activity through a Lucas supply curve combined with a fair degree of money illusion, which is what you would expect from a longstanding deflationary environment. Businesses will confuse nominal changes with real changes, raise output, and eventually figure out the confusion and restrict output again. The economy does get to keep a one-time gain (probably there are positive social externalities to higher output in this setting), but it doesn’t drive an enduring recovery. 4. I should be seeing at least a dozen blog posts with titles like: “Japanese monetary policy: sticky wages or Lucas supply curve?” and the like. I’m not. “)(April 9, 2013 post by Tyler Cowen)

  14. Gravatar of Benjamin Cole Benjamin Cole
    8. April 2016 at 08:29

    Dan W.– Huh? I don’t understand what you are proposing. I do not think the government should cancel debt.

    When a central bank prints money and buys debt, they are paying off the bondholders, who then can place an immediate claim on goods, services or other assets. No one else in the economy has to give up an immediate claim in order for the people who sold bonds into QE to gain an immediate claim. This is this stimulative aspect of QE.

    BTW Japan has decided to supply the economy with more, not less, large denomination paper currency.

  15. Gravatar of Gabe Gabe
    8. April 2016 at 09:13

    Mr Cole says:
    “In short, print money to run the government, or pay down debt.

    If that does not work, at least the population gets the benefit of tax cuts or reduced national debt.”

    This is the natural way forward IF the elite bosses of government actually sees taxes as a somewhat “necessary evil”. It seems that the truth is the elite don’t view taxes in the way us normal little people do….NO they view taxes as a feature that gives them added control to help keep the serf class in its place.

    That is why they don’t do as Benjamin says.

  16. Gravatar of dtoh dtoh
    8. April 2016 at 10:19

    @scott I think the initial effect is on AD, i.e. firms buy fewer factories.

  17. Gravatar of TallDave TallDave
    8. April 2016 at 11:40

    Well, as you know I’m a Japan optimist, but there’s a lot of path dependence in monetary policy — adopting NGDPT or NGDPLT today is a lot different than adopting it back in 1991, just as the Fed’s initial move to inflation targeting was a much different than it would have been absent TGI.

    But in any case, like the Fed, if the BOJ can buy up all that government debt without inflation, why the heck wouldn’t they? Free money is free money, even if they should be cutting taxes instead of spending more.

  18. Gravatar of TallDave TallDave
    8. April 2016 at 11:46

    Haruhiko K 7. April 2016 at 13:45

    Inflation and M2 can’t stay disconnected forever, but at the point they do, BOJ can sell debt and buy back yen. Until they do, it’s free money.

    Where Japan needs to be very, very careful is on the fiscal side. They should take the opportunity to balance their budget and cut taxes, returning all that money to the private sector. If they ram up spending on the assumption BoJ can absorb debt endlessly, they could end up in a lot of trouble.

  19. Gravatar of ssumner ssumner
    8. April 2016 at 12:21

    Thanks James. What do you make of the difference between the TIPS spreads and the consensus forecast of private economists? I suspect the TIPS spreads may slightly understate inflation expectations, but I can’t be sure.

    Ray, And so what’s happened to the unemployment rate in Japan in the period since Tyler wrote that? Let me guess, pretty much what I predicted.

    dtoh, But you said those are a “barrier” to higher AD. Why?

    Talldave, I agree that they should balance their budget, but I’d say they need to raise taxes to do so.

  20. Gravatar of H_WASSHOI (Maekawa Miku-nyan lover) H_WASSHOI (Maekawa Miku-nyan lover)
    8. April 2016 at 12:45

    Sumner-sensei,

    > officials in the Abe government, who advocated lowering the inflation target to 1%

    I don’t know who this is.
    Abe put rigid persons toward 2% target to BOJ. I understand.

    Since 2012, I saw big “expectation volatility”.
    I knew what Japan want to do. So it was strange.

    There is MANY political options to boost NGDP.
    Maybe they will come out within next 2 month.

  21. Gravatar of Benjamin Cole Benjamin Cole
    8. April 2016 at 15:04

    Scoot Sumner will get a kick out of this:

    Japan to print additional ¥10,000 bills as more people stash their cash at home
    JIJI

    The Finance Ministry plans to increase the number of ¥10,000 bills in circulation, amid signs that more people are hoarding cash.

    It will print 1.23 billion such notes in fiscal 2016, 180 million more than a year earlier. The number of ¥10,000 bills issued annually leveled off at around 1.05 billion in the fiscal years from 2011 to 2015.

    Some financial market sources believe it is because more people are keeping their money at home rather than in banks, because interest rates on deposits have fallen to almost zero after the Bank of Japan introduced a negative interest rate in February.
    The total amount of cash stashed at home is estimated to have surged by nearly ¥5 trillion to some ¥40 trillion in the past year, Hideo Kumano, chief economist at Dai-ichi Life Research Institute, said.
    He attributed the sharp increase to people not wanting their wealth to become known to authorities following the introduction of the My Number common identification system for tax and social security.
    In addition, the BOJ’s negative rate policy “may have fueled concerns among the public about depositing their money in banks,” Kumano said.
    There will be 200 million ¥5,000 bills issued in fiscal 2016, down by 80 million, and 1.57 billion ¥1,000 bills, down by 100 million.
    Recent BOJ data show daily averages for currency in circulation rose 6.7 percent from a year before to ¥90.3 trillion at the end of February, the sharpest growth in 13 years.
    The number of ¥10,000, ¥5,000 and ¥1,000 bills in circulation increased 6.9 percent, 0.2 percent and 1.9 percent, respectively.

  22. Gravatar of ssumner ssumner
    8. April 2016 at 16:14

    Wasshoi, Check out this article from the Economist:

    “Some of Mr Abe’s advisers are against more quantitative easing for political reasons as well. It has boosted property and stockmarkets, and driven down the yen, helping big exporters. But many small businesses and households say they are not feeling the benefits, only higher prices for imports. A concern for Mr Abe’s advisers—and for the central bank itself—is how the government-bond market has been showing signs of strain. The central bank is by far the biggest buyer of bonds these days, and has chased out other market participants with its massive purchases. That may make it hard to sell government bonds in future. As it is, the lack of a deep secondary market has led to worrying increases in volatility. To forestall further easing, some advisers even speak about changing the Bank of Japan’s 2% inflation target to a more modest one, of perhaps 1%.”

    http://www.economist.com/news/asia/21648020-government-shinzo-abe-increasingly-odds-central-bank-end-affair

    Ben, No surprise there.

  23. Gravatar of H_WASSHOI (Maekawa Miku-nyan lover) H_WASSHOI (Maekawa Miku-nyan lover)
    8. April 2016 at 17:05

    The Economist is wonderful and great (news) paper.

    However,sometimes it is not good about Japan’s (MP) things since 1998 as long as I can see.

    I have see “rasing interest rate help the economy” thing on the economist about Japan (90s?).
    I heared they asked useless question to JAL CEO Inamori press conference
    .(2011?)

    governance?

  24. Gravatar of Dan W. Dan W.
    8. April 2016 at 17:06

    Scott,

    From the article you just mentioned: “But many small businesses and households say they are not feeling the benefits, only higher prices for imports.”

    If more people feel hurt by QE than helped by does that not show QE is a failure? I mean the purpose is to help people and yet a majority of people are saying they don’t like the program.

    Your only retort is that it would be worse without QE. Maybe, maybe not. But you cannot look to the Japanese program and unequivocally label their QE a success. Not only has it not been a success but evidence indicates that an even larger QE program would amplify inequities that are the source of complaint against the QE program.

  25. Gravatar of dtoh dtoh
    8. April 2016 at 18:23

    @scott
    Normally, CB asset purchases (to the extent they are not sterilized by higher ER), would cause the non-financial sector to marginally increase its exchange of financial assets for goods and services (think HPE if that makes you more comfortable). More good and services purchased = higher AD.

    Essentially you have a curve where higher asset prices result in more assets exchanged for good and services (higher AD). If you measure asset prices in terms of pre-tax return, then in country with high taxes on capital and burdensome regulation, there will be a very flat curve… changes in asset prices result in very little change to AD.

    This is the situation in Japan. Instead of buying more goods and services, the non-financial sector (firms and individuals) hordes cash or buys foreign assets. Foreign asset purchases drive the yen down, you get increased exports (mostly by large firms) and higher import prices for everybody.

    So it is entirely expected that the result will be that “many small businesses and households say they are not feeling the benefits, only higher prices for imports.”

    The BoJ might just as well be buying US Treasuries and equities directly. The result would be exactly the same. The only difference is that currently Japanese pension funds (and other financial institutions) are intermediating the trade.

  26. Gravatar of dtoh dtoh
    8. April 2016 at 19:00

    @scott

    Some rough numbers which may be useful for the discussion on Japan’s government deficit and debt.

    Japan
    Total debt $10 trillion
    Government Pension Fund Assets $15 trillion

    US
    Total debt $20 trillion
    Social Security Trust Fund Assets $3 trillion

  27. Gravatar of Postkey Postkey
    9. April 2016 at 00:20

    It is the ‘credit aggregate’ that is important, not the ‘traditional deposit measure’?
    “Proponents of the deposit view sometimes argue that it should not matter whether deposits or loans are being analysed, as both tend to be equal in the long run. Werner (1996c) shows that in the Japanese case, a broad credit measure and M2+CD, the traditional deposit measure, diverged greatly in the 1990s.
    While significant growth of M2+CD seemed to suggest an economic recovery in 1995, the credit aggregate suggested a contraction of nominal GDP growth – for the first time since 1931. The latter is what happened. Conversely, while M2+CD growth remained stable from mid-1995, the credit aggregate suggested a sudden economic recovery from the fourth quarter of 1995, which again materialised.”

    http://eprints.soton.ac.uk/339271/1/Werner_IRFA_QTC_2012.pdf

  28. Gravatar of ssumner ssumner
    9. April 2016 at 06:56

    Wasshoi, Yes, the Economist is not good on monetary policy.

    Dan, The Abe government was overwhelming re-elected, as the voters are very pleased with his economic policy.

    dtoh, What are the $15 billion in pension fund assets composed of?

  29. Gravatar of dtoh dtoh
    9. April 2016 at 15:35

    @scott
    Typo in my post. It should be 1.5 trillion not 15 trillion.

    Domestic bonds 35%(±10%)
    Domestic equities 25% (±9%)
    International bonds 15%(±4%)
    International equities 25%(±8%)

    Up until a couple of years ago it was 60% JGBs.

  30. Gravatar of TallDave TallDave
    9. April 2016 at 15:40

    Scott — I’m not sure there’s much evidence Japan is under-taxed, as opposed to overspent.

  31. Gravatar of ssumner ssumner
    10. April 2016 at 05:37

    dtoh, What’s the point of providing data of Japanese government holdings of JGBs? If the Japanese government prints a quadrillion JGBs, and holds them, does that make it rich?

    Talldave, They could also cut spending, but they don’t want to do so. OK, then pay for it.

  32. Gravatar of James Alexander James Alexander
    10. April 2016 at 08:30

    TIPS protect against CPI-U, so a long way above “inflation”, whatever that is. But it’s clear Yellen now has an inflation ceiling and that if the Fed staffers projected inflation goes above 2% they will tighten. So TIPS at <2% seems right. Consensus economists are biased to follow the Fed staffers otherwise they'll be cut out of "the loop" if they become too independent. They also have a crowd mentality, like opinion pollsters, not wanting to be seen to be too different. I'd follow the money. 10 year benchmark yield at 1.70% is telling us nominal growth will be dull, dull, dull.

  33. Gravatar of ssumner ssumner
    10. April 2016 at 09:18

    James, I just checked the TIPS spreads and I stand corrected. Last time I looked the 5 year spread was in the low 1% range, which seemed way too low, especially given it represents the CPI. But now it’s 1.57%, which seems more plausible. I’d guess around 1.8% CPI inflation over the next 5 years. But’s that’s consistent with 1.57% PCE inflation. So if someone (wrongly) interprets the TIPS spread as PCE inflation, it’s probably about right.

    I still think Yellen has a symmetric target, and is simply relying too much of PC models.

  34. Gravatar of James Alexander James Alexander
    10. April 2016 at 12:58

    If it was a symmetric target she wouldn’t be so defensive when asked about symmetry. The Fed can’t project PCE PI at or above 2% without putting the FOMC under enormous pressure to “do something”. Indeed, they did do something in December. Markets respond to that, so naturally capping any strong recovery in nominal growth. It’s a variant of your powerful “offset” theory in action.

  35. Gravatar of dtoh dtoh
    10. April 2016 at 18:12

    @scott
    Seems to me the focus on Japanese government debt and the deficit is a little misplaced. Rather than focusing on which accounting bucket you put the money in, the bigger issue is whether overall allocation of resources is optimal (or anywhere near optimal), and more specifically is the level of investment sufficient to generate desired growth.

    Does it really matter whether I lend money to the government in order to get free stuff or whether I pay taxes to get free stuff.

  36. Gravatar of ssumner ssumner
    11. April 2016 at 18:56

    James, I think even Yellen probably now views the December move as a mistake.

    dtoh, It might matter down the road, as the Greeks are finding out.

  37. Gravatar of dtoh dtoh
    11. April 2016 at 21:32

    @scott Yeah, but the Greeks borrowed from the Germans. The Japanese are borrowing from themselves.

  38. Gravatar of derivs derivs
    12. April 2016 at 02:32

    “Does it really matter whether I lend money to the government in order to get free stuff or whether I pay taxes to get free stuff.”

    C’mon dtoh, you know better. One is a direct transfer (debit me, credit thee) the other has the same 2 transactions but results in 2 other entries leaving me with a + and the gov’t with a -. Essentially, the former changes my net liq for the worse, the latter is +/- a 0 sum transaction for me.

    “The Japanese are borrowing from themselves.”

    The Japanese gov’t is borrowing from the Japanese people. 2 separate entities.

  39. Gravatar of Did the G20 agree a currency accord and does it matter? Did the G20 agree a currency accord and does it matter?
    12. April 2016 at 03:04

    […] links:JP(wh)Y? revisited. And a break in the currency wars? FT AlphavilleHas the BoJ abandonded the 2 per cent inflation target? SumnerThe Plaza Accord, then and *cough* now? FT AlphavilleJPY, it wasn’t meant to be this way […]

  40. Gravatar of dtoh dtoh
    12. April 2016 at 07:48

    Dervis,
    Of course I was being partially facetious, but what is the Japanese government other than the Japanese people acting collectively.

    The problem is not the debt/deficit per se.

    The real problem is twofold. First the way things are currently allocated has to change. Basically you have urban workers transferring income/consumption the elderly and rural Japan, which is fine except the number of workers is going down and the number of elderly is going up. All kinds of ways to solve the problem including inflation, higher consumption tax, rounding up the social security deadbeats, raising the pension eligibility age, higher co-pays on medical care, higher pension deductions on wages, import more foreign workers, let farmers starve, etc. It’s just a question of which combination of measures has the least political resistance.

    The bigger issue though is that there’s no growth, because there’s not enough domestic investment, because taxes on capital are too high and regulation is too burdensome. Solving this problem doesn’t seem to be on radar. Japan will just shrink into oblivion with a bigger share of production going to the support and care of the elderly.

    Well actually I think what you’ll have is an accelerating shift to the grey economy and cash businesses, which is why…Japan already has the best restaurants and beauty parlors in the world.

    (Also Japan has $3+ trillion in net foreign assets which provides a bit of a cushion.)

  41. Gravatar of Central bank tightening risk, charted – Announcement Press Central bank tightening risk, charted - Announcement Press
    12. April 2016 at 22:41

    […] links:JP(wh)Y? revisited. And a break in the currency wars? FT AlphavilleHas the BoJ abandonded the 2 per cent inflation target? SumnerThe Plaza Accord, then and *cough* now? FT AlphavilleJPY, it wasn’t meant to be this way […]

  42. Gravatar of Central bank tightening risk, charted – Ba Wire Central bank tightening risk, charted - Ba Wire
    12. April 2016 at 22:42

    […] links:JP(wh)Y? revisited. And a break in the currency wars? FT AlphavilleHas the BoJ abandonded the 2 per cent inflation target? SumnerThe Plaza Accord, then and *cough* now? FT AlphavilleJPY, it wasn’t meant to be this way […]

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