Friday, October 2, 2009
Japan prices fall at record rate
Consumer prices fell at a record level in Japan in August. There is an increase in unemployment and falling wages are keeping the domestic demand weak. There has been a six month straight decline in CPI. Deflation can lead to problems like it can prevent the companies from profiting and consumers will postpone their purchases that will lead companies to cut down on production. Japanese new govt. is trying to boost up domestic demand....
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2 comments:
I can see how Japan might be concerned with a lost decade round 2. One thing that Ben Bernanke proposed to Japan during the 1990's crisis was for the Bank of Japan to create inflation (print money/quantitative easing) and vow not to do anything about it. When people believe that the value of their money will shrink, they will start spending it, and hopefully take the deflation pressure off.
I think that the spending problem that Japan faces lies in its cultural heritage, mainly Confucianism. The culture values thrift, and, therefore, spending rates are usually lower than in the US for example. That is why, I agree that Japan should aggressively employ expansionary monetary policy as a method to stimulate its economy.
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