Japan Retail Sales Unexpectedly Slide for 16th Month
This article is a great example for our discussion in class on Monday. We were talking about how expectations for inflation/deflation greatly affect how prices actually change. We also mentioned that once deflationary expectations set in in an economy, they are extremely hard to get rid of. Just that is happening in Japan right now and there are huge drops in sales. A survey also showed that people are beginning to expect deflation and are waiting to buy until prices fall.
~Cassie
Poor job prospect, coupled with consumers' deflationary expectations, would very likely drive the Japanese economy into a severe recession. Since it is especially hard to get rid of the deflationary expectations, perhaps simply keeping a low interest rate won't be enough to combat the potential recession. I think the government can also issue free coupons which have short periods of validation and can be spent on designated products in supermarket. This may help to boost the retail sales.
ReplyDeleteA simple way of getting rid of excess production would be to focus on decreasing the overall supply of products. Unfortunately the Japanese are experiencing an increase in the rate of unemployment so their economy needs expansion rather than contraction. What Japanese macro economists can do to solve this problem is announce that the government will purchase Bonds from individual banks. By doing so they will increase the expected inflation and people would stop saving their money because the idea of lower prices in the near future would be countered.
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