In Japan, Moves to Stimulate Economy Reach a Critical Stage
In Japan – Hiroyuki Hara has increased prices at his flower shop in recent months, part of a broad reversal of the deflation that has long plagued Japan’s economy.
Japan’s audacious campaign to reinvigorate its economy is entering a make-or-break phase.
After nearly two years of aggressive stimulus under Prime Minister Shinzo Abe, joblessness has plunged, big companies like Toyota are earning record profits and corrosive price declines have been replaced by something Japan has rarely seen in decades — inflation.
The problem threatens to undermine support for the effort at a critical juncture. Economic output fell sharply in the second quarter, immediately after April’s sales tax increase — evidence that consumer confidence remains fragile.
“There is a spreading sense of disappointment with Abenomics,” says Masazumi Wakatabe, an economics professor at Waseda University in Tokyo.
When prices fall, it encourages households and businesses to squirrel away cash, holding back growth. Deflation also makes it difficult for central banks to rally an economy by cutting interest rates, which in Japan have been stuck at zero for years.
Instead of the balanced rise in prices and wages that Mr. Abe promised, pay has lagged, in effect making workers poorer. Adjusted for price changes, household incomes were down a full 6 percent in September compared with a year earlier.
“We are at a critical point for escaping deflation,” Haruhiko Kuroda, the central bank governor, said, adding that “half measures” would only bring back Japan’s “deflationary mind-set.” Hinting at what could be more stimulus to come, he added that the Bank of Japan would do whatever it took to meet its official target of 2 percent “core” price increases, a measure that excludes the effect of taxes and other items.
“If the yen weakens any further, it would be bad for Japan’s economy as a whole,” Genichi Tamatsuka, the president of Lawson, one of Japan’s biggest convenience store chains, told reporters this week.
“If there were a loss of confidence in the government’s finances,” Mr. Kuroda said last week, “it would be extremely difficult to deal with.”
Source: NYT – In Japan, Moves to Stimulate Economy Reach a Critical Stage
