Re: Japan’s Central Bank Warns of Temporary Return to Deflation
BOJ governor Kuroda and his supporters should question the very foundation of their beliefs that inflation is “…crucial to rekindling growth…” and that “a ‘deflationary mindset’ is behind many of Japan’s economic woes” as evident in “weak consumer spending and a reluctance by investors and businesses to take financial risks…” This chain of beliefs that falling prices reduce aggregate demand and lead to a vicious downward spiral in the economy is nonsense. Falling prices actually spur spending as households’ real income rises. Higher prices, as championed by Mr. Kuroda, destroy household purchasing power and leads to business retrenchment and higher unemployment. Mr. Kuroda needs to let the Japanese people alone for a few years in order for them to rebuild household balance sheets, which will lead to an expanding economy. Mr. Kuroda and his supporters have put the cart before the horse.