http://blogs.wsj.com/moneybeat/2013/10/08/japans-coming-inflation/
Japan has some major economic problems. Many of them stem from a country that as a population is getting old. Another however is inflation.
If inflation were to rise drastically, Japan would have many problems with its currency. Japan already owes a huge amount of money on bonds. All of that debt will increase in how much needs to be paid out. Once that happens and they are incapable of paying it off, investors will end up creating a run on the yen. That would create a serious problem for Japan. A run on the yen would add to their debt even further which would just go in circles and keep causing problems.
These problems represent somewhat of a miss judged plan by the Japanese banks. The have failed to plan properly for an aging population. Now they are trying to force a misguided plan out there that will only make things worse because the idea that inflation is a good thing falls a little flat when you have so much debt.
Basically, I agree with you that Japan's policies are short-sighted right now. I also agree that Japan's probably come from having an aging population. I'm not sure that any country in the world has effectively figured out how to handle that problem. The US offsets its aging population through immigration.
ReplyDeleteAnyway, the one thing you're not taking into account is that 90+% of Japanese debt is domestically held. The "run on the yen" scenario you outline would only be true if the people were willing to wreck their country around them. The population is also defies international norms of behaviors in crisis, waiting in lines patiently after the 3/11 earthquake a few years ago. The panic scenario you outline is a little out of sync with those realities, and is also the reason the government is being so reckless now.
It's probably not a good idea for japan to increase inflation at such an uncertain time with an aging population. While the short term goals of such a policy may seem attractive, they be measured carefully. We will never forget 3/11/11.
ReplyDeleteI agree that Japan's idea's are not good for the long term. Inflation will hurt the elderly population not help them. They really can't afford to be more in debt. The government didn't plan for the future and made bad choices and it's just sad the people are goign to be the ones to pay for that.
ReplyDeleteWith the country's aging population, the economy of Japan is not reaching its full growth potential that it may be reaching if the population was younger. I believe that with this lack of economic growth and large amount of debt, Japan could become the next Italy or Greece unless there are some huge turn-arounds. I don't know how the country expects to improve because they cant just ask the elder population to start working again after they may have retired.
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