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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Japan Lacking Fiscal Plan May Be Deflation Cause, Shirakawa Says

Posted by WARREN MOSLER on April 23rd, 2012

Shared delusion…


By Paul Panckhurst

April 22 (Bloomberg) — Japan’s absence of “concrete reform plans” for the nation’s finances may be contributing to deflation and sluggish economic growth by discouraging spending by the public, central bank Governor Masaaki Shirakawa said.

Consumers may be limiting spending “on concerns over future fiscal developments,” Shirakawa said in remarks prepared for an event in Washington yesterday. This may be “one factor behind sluggish economic growth and mild deflation,” he said.

The Bank of Japan is under pressure from lawmakers to step up its attack on more than decade-long deflation as the government seeks to sustain a recovery from last year’s earthquake and economic contraction. Shirakawa has pledged to extend “powerful” easing until a 1 percent price goal is in sight and his policy board next meets on April 27.

The nation’s borrowings will exceed 1,000 trillion yen ($12.4 trillion) for the first time in this fiscal year, the Finance Ministry projects, while the Organization for Economic Cooperation and Development predicts Japan’s public debt will reach 219 percent of gross domestic product.

Shirakawa said yesterday that stability in Japanese government bond yields shows investors’ expectations that “fiscal soundness will be restored through structural reforms in both the economic and fiscal areas.”

“At the moment, such expectations are not firmly backed by concrete reform plans,” he said.

16 Responses to “Japan Lacking Fiscal Plan May Be Deflation Cause, Shirakawa Says”

  1. Abram Larson Says:

    Wait, I thought excessive public debt was supposed to cause INflation. Now it causes deflation? You just can’t win with these people.


  2. Matthew Arnold Says:

    Structural is the key…


    roger erickson Reply:

    @Matthew Arnold,

    Exactly what does “structural” mean? An earthquake in East Asia?


  3. walid M Says:

    priceless :

    Shirakawa said yesterday that stability in Japanese government bond yields shows investors’ expectations that “fiscal soundness will be restored through structural reforms in both the economic and fiscal areas.”

    Back in the UK , the chancellor believes low bond yields are a vote of approval from investors for the Gov’s austerity plan …


    Leverage Reply:

    @walid M,

    There is no hope with these clueless “”"technocrats”"” and politicians.

    We are doomed.


  4. SteveK9 Says:

    Japan also has problems in the ‘real’ world … an aging population, plus their government let them done by allowing a nuclear plant to be destroyed (which could easily have been protected), which is causing them to abandon nuclear power and force the importation of huge amounts of fossil fuels.



    and resistance to deficit spending in response


  5. Monica Smith Says:

    I wonder what expectations instinct-driven people, who follow the crowd, have. Perhaps expectation is a synonym for wishful thinking.


  6. roger erickson Says:

    @Monica Smith, May largely be nested variants of the Principle of Prior Plausibility?

    Propaganda & self-delusion both work best when introduced first. It’s harder to undo any established pattern than to initiate one de novo, lacking conclusive feedback. Every network has some developmental momentum. Sometimes it takes near death to withdraw from a dead-end process(in time).

    Left unchecked, a what-if can easily spiral into a presumed must-be. After that, you’ll rarely get fired for carrying on up the Khyber Pass, and misery loves the comfort of loyal company.


    Save America Reply:

    @roger erickson, “Sometimes it takes near death to withdraw from a dead-end process(in time).”

    The floating FX system we have today could fit nicely in your idea, it will take near death of possibly hundreds of millions of humans, if not more, before some real scrutiny is given to the functioning of this system for the betterment of all. Its hard to undo an established pattern of floating FX (that seems often advocated here), even while people perish all over the planet. 1 billion starving humans, food for fuel policies that even warren is against, maybe the floating fx system we have today needs replacing. Beggar thy nieghbor is everywhere and my asian friends assure my the currency markets are soon to collapse and gold and swords and guns (like the pirate days) are going to be heavy in our future. The drone UAV’s looking down at warren while he fishes off his boat to ensure he follows the rules are a hard target with warrens puny rifle, how does he protect himself from intrusion? The bank accounts and hedge fund portfolios of his that has been hacked by government agnecies and rogue russians also are beyond his ability to protect.


  7. Piero Says:

    Jpy is preparing new QE… Nikey seem preparing a slow accumulation by ten years on the support of mid 1980.. could Nikkey be a good idea for diversification on a very long term view ?



    don’t know. vulnerable to china?


  8. walter Says:

    I do not know the energy arrangements of Japan, but I guess that they have to replace some domestic generated nuclear energy by some imported oil after last years events. Do you see this development as having a downward effect on the yen, pressing usd/jpy up?



    good point and very possible, thanks!


  9. Ralph Musgrave Says:

    Why wouldn’t Mosler’s law work in Japan? I.e. feed enough money to households, and they’ll spend it. Problem solved.

    I suspect that half the problem is that accepting that the solution is that easy would put hoards of academics and technocrats out of a job. So they claim the problem is more complex than it really is.





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