Japanese Prime Minister Shino Abe has been touring the US this week. Much of the week was spent apologizing for the War in the Pacific, but Abe's also on an economic mission. Japan continues to see lackluster growth thanks, no doubt, to its highly regulated and corporatist economy. But Abe has taken things even further with Abenomics, a "stimulus" program devoted to rapidly expanding the money supply and devaluing the yen. Has it worked? Well, this morning the Bank of Japan downgraded its economic outlook, and observers noted:
The economic recovery is stalling, wages are barely rising, and inflation excluding food and energy is near zero, too. What's more, it is far from clear that quantitative and qualitative easing has lifted inflation expectations among households and firms.
Remember, nowadays, "success" is defined by achieving a 2 percent inflation rate, and a source of much consternation in Japan is the current low inflation rate, and deflation is said to be the source of Japan's alleged 20-year malaise. As explained by Peter St. Onge here, and Brendan Brown here, however, the assumption that Japan was laggiung other advanced economies before Abenomics is rather questionable, which then leads us to questioning the justification for Abenomics, and the hysteria over a lack of Japanese price inflation.
Brown notes:
The architects of the Obama Monetary Experiment have cited as justification Japan’s “lost decade” and the supposed source in deflation. In fact, though, the only period during which the Japanese economy underperformed other advanced economies (as measured by the growth of GDP per capita) was from 1992-97. The underperformance of that period had everything to do with insufficient price and wage flexibility downward, the Clinton currency war, and the vast malinvestment wrought by the prior asset price inflation, coupled with a risk-appetite in Japan shrunken by the recent experience of bust.
Japan's problem isn't deflation, it's an inflexible economy.
And indeed, "flexibility" is not exactly a word one is tempted to use to describe the Japanese economy. Marc Abela here and here [Mp3 interview] describes many realities of Japanese political economy, and David Howden writes on Japan's easy-money Tsunami here.
For more on Japan from Mises.org: see:
Shinzo Abe and the Three Magic Arrows by Andy Sirkis
Shinzo Abe Got His Butter, Now WantsGuns by Ryan McMaken
Is Japan Heading for Another Lost Decade? by Frank Shostak
Capital Based Macroeconomics: Boom and Bust in Japan and the U.S. by John Cochran
Explaining Japan's Recession by Benajmin Powell