Why is there deflation in Japan?

"Perhaps deflation isn't all that bad"


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"It is necessary to put money into the reconstruction," says Rhodes, "but Japan can hardly afford it any more." Ito agrees and calls for a massive increase in VAT. If new spending continues to be financed through loans, Japan could slip into a debt crisis. So far, the country has been able to manage its huge debt because more than 90 percent of government bonds are held domestically. However, the capacity of the Japanese market to buy new bonds will soon be exhausted. The aging population is increasing the proportion of those who do not save money, but use up their savings.

Should the state have to look for creditors abroad, higher interest rates are likely to result. According to calculations by the Ministry of Finance, an increase of just one percentage point would result in additional interest costs of 80 billion euros per year. In addition, Abe's fight against deflation does nothing to change the deeper problems of the Japanese economy. Many companies are hardly competitive internationally. Bureaucracy hinders the economy. "All sectors have to open up to real competition and break down the ties that are often too strong with the government bureaucracy. And the ubiquitous hierarchies in everyday life are currently not rewarding performance, but seniority," says Rhodes.

Since the wage level has recently fallen and there are currently few signs of an end to the recession, two or three percent inflation should also depress purchasing power. This would neither stimulate consumption nor investment. "Perhaps deflation isn't all that bad," says James Rhodes. Inflation could make things worse.