Maybe 3 lost decades?: Government Declares Japan Has Slipped Into Deflation

Discussion in 'Economics' started by ByLoSellHi, Nov 19, 2009.

  1. All major economies are drawing nearer to cash hoarding and a vicious deflationary mentality and cycle.

    Friday, November 20, 2009
    Govt Declares Japan Has Slipped Into Deflation

    TOKYO (Kyodo)--
    Japan has slipped into deflation, Deputy Prime Minister Naoto Kan said Friday, adding to concerns about a solid recovery for the world's second-largest economy.

    This is the first time in more than three years the government has assessed that Japan is in deflation.

    Kan, also state minister for economic and fiscal policy, said the government believes that Japan is in ''a deflationary situation'' and the role to be played by monetary policies is very important.

    Kan said the government will tell the Bank of Japan about its understanding of the current economic situation, hoping to work closely with it to avoid jeopardizing some recent tentative improvements in economic activity.

    At a separate news conference, Finance Minister Hirohisa Fujii said he is deeply concerned about deflation in Japan, but there is no magic prescription for the challenge from a fiscal front as public spending will not help raise prices.

    ''We are aware of the serious risk,'' Fujii said, when asked about his interpretation of mounting deflationary pressures in Japan. ''The current situation is not what it should be.''

    Fujii said addressing deflation is ''a very important point'' in running the economy. But he said that fiscal policies in principle lack the capacity to fix the economy.

    ''Public (spending) has propping-up effects,'' he said. ''But when it comes to improving the economy, in the words of (economist John Maynard) Keynes, it has to come from the private sector.''

    The latest economic outlook released Thursday by the Organization for Economic Cooperation and Development also warned that deflationary pressures continue unabated in Japan and called on the central bank to deal with them appropriately, such as maintaining interest rates at their current low levels.

    OECD Secretary General Angel Gurria, speaking at a news conference in Tokyo for the release, said, ''The pace of recovery will not be strong enough to reduce the unemployment rate below 5.5 percent or to stop the decline in prices, even in 2011.''