Japan experienced falling prices during most of their recession. This was inspite of massive stimulus packages and the lowering of interest rates. Did consumer prices not rise because the governments didn’t monetize debt/print money and banks didn’t lend to sure up losses? I’m rying to figure why Thorsten Polleit says deflation won’t happen in the U.S. I’m assuming it is because worst case scenario the government will monetize and even nationalize the banking sector as Bernanke said in 2002. What is difference from the Japanese and current U.S. experience? Sorry for the long post…i’m new to mises.org. Thanks.
The Bank of Japan (BoJ) has had one of the least “aggressive” inflationary policy in the world. They have been extremely cautious with money base expansion to the point of resisting pleas from political and industrial groups to “help the exports”, something almost unconceivable in Japan’s bureaucracy. If I remember correctly (and I hope someone will find a link since I cannot) their monetary expansion in the 2000-2008 period has been about a quarter of the ECB’s and the FED’s (which have been quite similar). As you can imagine this has led to price deflation in many sectors.
Public debt is another matter completely. The Japanese government has been an enthusiastic borrower, mostly because more than 80% of Japan’s debt is held internally. Some analysts argue that Japan would have never risked such moves if they didn’t have what’s called “a capitve internal market”. The biggest holder of Japanese bonds is, by far, Japan Post. Very simply put people put (read on though) their money in saving accounts at the post office and this money is used to buy bonds: interests are then passed on to savers. Because of Japan’s deflationary situation even meager returns are considered acceptable while banks have played their part by offering equally meager returns to savers. Japan Post is State-owned, so they won’t stop buying bonds all of a sudden. One of the key issues which brought down Mr Yukio Hatoyama’s government was the proposed privatization of Japan Post. As you can expect Mr Hatoyama and his cabinet (one of the few fresh things on the stale menu of Japanese politics: at least they had some interesting ideas) took a lot of flak for even considering such a move.
Now there’s a big issue. The Japanese public is becoming less and less captive. They are still huge savers but people under 60 are questioning why they should keep on getting less for their hard earned money just to allow the government to spend as much as it pleases. Japanese banks have taken notice of this trend and (albeit VERY slowly and VERY carefully) have started offering a few alternatives to domestic bonds. As you can well imagine this doesn’t sit too well with some interest groups (chief among which are the all-powerful retirees’ and farmers’ unions) which see this as a legitimate threat to their position. Less money going into the purchase of debt means less money for them. And that’s not going to happen, no sir.
hey there, Japan-resident Aussie here.
Excellent points there by Kakugo but I just needed to point out a couple of things: although Yukio Hatoyama himself fell, his government did not and is still in power under a different leader today. The Japan Post privatization plan wasn’t his – it came from an earlier PM, Junichiro Koizumi (the crazy-haired one) of the long-term Liberal Democratic Party in the mid 00’s, and was always opposed by the other main party, the Democratic Party (they really go to town with their party names here) which is now the government, and doing their best to undo the plans.
Koizumi fought long & hard for postal privatization, even to the point of expelling some prominent members of his own party. In 2005, he won an electoral landslide on the issue. It’s kind of sad watching it all now slide back into being the big state controlled behemoth he tried to dismantle.
(I know this post says nothing about deflation… my apologies)
But what i don’t understand is this…Japan had billions worth of stimulus in the 90’s for example. And i’m assuming this was not derived from real savings, therefore as per Austrian theory, would be inflationary. That is, money was borrowed by the government to fund the stimulus. Was the reason there was deflation the fact that banks didn’t lend the stimulus and the government elected not to monetize debt? The latter which would normally allow the government to inflate when banks don’t lend?
Consumer prices never really fell during their “lost decade”, you can look up statistics, they were stable, if not rising slighly.
What most commentators when talking about Japan “deflation” are referring to, is decrease in the Stock market capitalizations, which collapsed continuously for many years.
In my opinion, it’s just a general confusion by sloppy commentators and economist about categorizing “falling prices” as deflation.
I’ve heard that since Japan is so productive prices should have fallen significantly, like computers and cell phone prices fall here all the time. The inflation stopped this from happening.
This is also why prices fell during the great depression in the US
I thought they had a decreasing money stock also? What’s the main reason they didn’t experience hyperinflation like some Austrians are saying will happen in the USA?
this article here is about a Morgan Stanley analysis that attempts to answer the question, pointing to several factors in Japan’s economy, politics & society that make it incomparable to the US. You can make up your own mind if it’s valid or not.
In a way, the post office issue does tie in with this, as it presents an example of a massive economic policy reversal.
In other news, Japan just announced another $61 billion of stimulus last week. Here we go again!
Thanks a lot for filling me in South.
I am trying to find as much as possible about Japan because I am starting considering moving there so every tiny bit of information helps.
^^ no problem – I’ve been here about 8 years now, so if you have any questions, feel free to ask.
As someone who lives in America I must ask is the whole “utopic Japan” a reality? I’ve heard that it is from many people who live or visit there but with things like the 61 billion stimulus, and the fact that a cursory look at the value of the yen vis-a-vis the dollar is 80 to 1, how could it be true?
My contacts are mainly american military -are there any special privileges for them viz buying?
And finally, is Japan’s education system truly sterling or are there any flaws in it?
Sorry for the barrage of questions, I’m just a little excited at the moment.
It’s not utopic, it’s just different. You have a relatively cautious Central Bank and a spending happy government. Given the labyrinthine nature of bureaucracies I say: why not? If the Bank of Japan manages to keep prices stable the government can still push its low-yield bonds on the domestic market: it makes sense. Of course the Bank of Japan has been under pressure by both the keiretsu and parts of government to inflate, mainly to increase exports to inflation-happy Western countries, but it’s not going to happen soon because it’s a high-risk game.
And about the Japanese education system: all I know it’s that’s very peculiar. For example there are first-grade universities: land, say, an engineering degree there and you’ll land a safe, well paid job with one of the big keiretsu. Land a degree in second or third rate university and you’ll get a less paid, much less safe job with one of the keiretsu’s contractors or subcontractors.
I read somewhere that Japan only increased their monetary base by 10% over 10 or 20 years (I can’t remember which). The US has almost tripled its monetary base in the last 2 years.
I think the bottom line is that Japan didn’t print money and can afford to service its debt. The US has started printing money like crazy and soon won’t be able to service its debt which will force it to print even more money.