Friday, December 05, 2008

Deflation in Japan

The benefit from the negative energy price shock should provide some boost to domestic consumption. On the other hand, the rise of the yen versus the dollar to more realistic levels is no doubt more than offsetting the benefit from the fall in oil prices. At this point, I think the Japanese authorities are unable to do anything meaningful to weaken the yen. Also, the bulk of Japan's exports are in sectors that are bearing the brunt of global slowing. Construction equipment, consumer electronics, autos, and steel based products...all are going to be slow for a while. The day of reckoning for Japan's economic system based on export subsidization has arrived.

Perhaps the BoJ should start selling its stock of Treasuries into the current bubble and use the proceeds to send each citizen a coupon/voucher which would be only valid for spending, and with an expiration date. A national campaign encouraging Japanese to "fix up your home", "eat a restaurant meal", or "buy a new computer" using the vouchers would promote the program. Seriously.

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