After years of deflation, Japan may be in a place where they are willing to accept inflation to help stimulate the economy. Deflationary expectations have been a part of the Japanese mind-set for years. The Japanese have now picked a Prime Minister, Abe, who is going to do everything in his power to raise inflation and get the economy moving.
Third quarter real GDP is up only .5% . Nominal GDP was down -.3 percent. The GDP deflator was down -.8 and has been negative every quarter since 2009:q3. Except for 2009, every quarter for a decade has been seen a negative GDP deflator. There was not resolve to raise prices. There was a period of positive GDP deflator numbers in 1997-98 but 20 years of data shows only 7quaters out of 80 which were zero or positive.
The BOJ has the control of money and it has to use the unconventional means discussed by Ben Bernanke to get inflation higher and the yen lower. Just the thought of change has seen a 10 point decline of the yen since October from 78 to 88. Now, there has to be concrete monetary action to further this trend. Here is a special case where getting prices higher and hurting wealth holders may be for their own good. Of course, the rest of the G7 may be thinking about similar plans.
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