http://www.economist.com/news/finance-and-economics/21570710-bank-japan-tests-limits-shinzo-abes-economic-power-win-some-lose
The above article is about new Japanese Prime Minister Shinzo Abe and his conflicts with the Bank of Japan. Specifically, he is trying to gain governmental control of the Bank of Japan to try increasing inflation, which has been historically negative for Japan. Some signs of the BoJ folding to his pressure is a target for 2% inflation in Japan. However, the BoJ clearly put the pressure on the government to come up with the money to push inflation to 2%.
An event to watch in the next couple months is the appointment of the new governor of the Bank of Japan. This person will likely be an Abe supporter that will be in favor of a permanent increase in the target inflation rate. However, the BoJ and Abe already see eye-to-eye on several issues (including Japan's new stimulus plan and deregulation) so perhaps the political battles won't be too intense in the future.
If the Keynesians are successful in pursuing this new prime minister inflation is not the only thing that will be affected. Keynesian policies will also affect production and emplyment in Japan.
ReplyDeleteJapan's deflation could be argued to be caused by it's aging population, as the over 65 set increases a larger share of the population moves unto fixed income. This means that any inflation reduces their real income and thus their demand. Those on fixed income only see their purchasing power increase when prices fall, so they have a vested interest in seeing deflation remain.
ReplyDeleteKeep in mind that Japan's population isn't merely aging it is literally falling, so they have a growing surplus of housing, infrastructure, and capital, not as much room for fiscal stimulus in that situation. You aren't going to convince 80 year olds to take out debts just to boost economic growth, and even if you did, how would they pay it back exactly?
This is a clear case of demography being ignored as a key factor in the economy's current state.