Japan: Next Stop Weimar?

The Bank of Japan in Tokyo has just announced that it plans on injecting up to 70 trillion JPY (nearly $700 billion) into the Japanese economy per year over the next two years in the hope of boosting business and pulling the country out of the doldrums. Others might say that that’s madness and that the Japanese are on the next train to the 1923 German Weimar Republic and hyperinflationary suffering. But, we all know that Japan has been at the top of the list in terms of coming up with experimental economics that seem like they have been popping pills and supping too much sake. But, do they have the answer to solve their problems?

Bloomberg economists commented on the announcement stating in the vast majority that there would be little change (if any at all) to the Japanese malaise. But, the real problem lies not in the disbelief of economists from around the world or those in the know, but the fact that the stimulus plan of the BoJ risks being undermined by the huge government debt yield surge that has taken place in the past five years. In a bid to join forces with Prime Minister Shinzō Abe in a double-whammy rescue plan by attempting to increase wages and prices, the BoJ believes that they can drag the country out of the deflationary problems that have been hitting the country for the past decade and a half. It looks like the BoJ are trying to allay any fears that they might be pulling out of the rescue plan and the injection announcement shines through as proof that they are backing Kuroda.

It’s true to say that markets move on rumors and hearsay, but times also come when it’s not what you say, but more what you don’t say that people hear the most. During the press conference, the BoJ made no mention of the rising debt yields being experienced. That long silence was heard loud and clear!

Anyhow, the Japanese are not the only ones taking a punch at the economic problems by pouring more fuel on the fire. The Federal Reserve, the Bank of England and the European Central Bank have all been doing the same in a group effort, so to speak. The more, the merrier? The difference this time is that nobody has even suggested such a figure as the one that is being branded about by the BoJ. But, is it really Hara-kiri on a grand scale? Maybe it’s not as stupid as it sounds. Deflation means people are saving their money. Deflation means saving money as what you are going to buy can be put off until another day. It’ll be cheaper anyhow, so why spend more? That just drags the economy down even more. Increase inflation just a little, and people will spend. It’s the little that causes the problem. Running head long into hyperinflation won’t do them any good either. Let’s hope they have a return ticket on that train journey, as it often turns out being a one-way trip!


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