Expect more of the same policies from the Bank of Japan (BOJ) for the indefinite future. The BOJ will continue to keep the short-term interest rate at or near zero and afford modest growth in the monetary base.
The interesting thing is that on Friday the BOJ gave a somewhat sanguine outlook about the country's growth prospects when it forecast that the economy will grow by 2.5 percent through the fiscal year 2003, which ends in March next year.
Still, BOJ Governor Toshihiko Fukui said that he views the economy through "cautious eyes." The problem, as he must see it, isn't growth; it's deflation, which is defined as a sustained fall in the consumer price or producer price level. Many economists view deflation as seriously as the collapse of the nation's banking sector.
The BOJ report forecasts consumer price deflation will endure past the March end of the fiscal year. The median forecast of BOJ's nine-member board calls for a drop of 0.3 percent in prices for the current fiscal year.
Fukui takes this very seriously. On Friday he said, "The Bank of Japan aims at putting Japan's economy back on a sustainable growth path by firmly maintaining the quantitative easing policy based on clear and concrete commitment with reference to the CPI." Now how could it be the case that an annualized decline of 0.3 percent in prices could achieve such importance in monetary policy? There's something unsettling about the price of goods falling on a consistent basis. People sense something must be wrong with the economy. This may be a legacy from the Great Depression, when falling prices became a symbol of the economic crisis.
Stock prices go up and down. When the price of rice or potatoes drops year after year, consumers have to wonder what's wrong with the economic system.
The cure offered by the authorities is often worse than the disease. While the phenomenon originates from monetary policy -- insufficient growth in the money supply -- governments often react by trying to control the price of goods and the level of production.
That's what was so tragically wrong about the policies of president Franklin D. Roosevelt's administration in the 1930s.
The New Deal policies tried to cure the depression by keeping prices from falling to protect producer profits. This in turn protected jobs.
Only a scoundrel would cut his price, so it was thought, and so it was enacted into law.
This idea is a fast trip to the belief that competition among suppliers is a harmful exercise. Follow this and you'll end up with no measurable deflation and no growth, either.
Japan today may have been a victim of the same knee-jerk reaction to deflation that prolonged the US depression in the 1930s. When prices fall, governments become protectionist.
The Japanese government's reaction to the last 13 years of economic malaise and accompanying deflation has been to block the competitive reconstruction of the economy.
You see this everywhere you look, in the forestalling of corporate bankruptcies and in banks continuing to lend to non-performing loan clients. The country has been on a mission to save companies from having to face competitive forces.
If prices need to fall, they need to fall. And if businesses are pressed by falling prices, then they need to be pressed.
Extending credit and other lifelines to companies that are technically insolvent does no one a favor.
For its part, the BOJ is right to continue to expand the money supply. That part is axiomatic, though it is far from certain that the BOJ has done enough money creation to curb falling prices.
The rest is experience. And this much is clear: A little bit of deflation can be the father of a great deal of very harmful policy response.
ENDEAVOR MANTA: The ship is programmed to automatically return to its designated home port and would self-destruct if seized by another party The Endeavor Manta, Taiwan’s first military-specification uncrewed surface vehicle (USV) tailor-made to operate in the Taiwan Strait in a bid to bolster the nation’s asymmetric combat capabilities made its first appearance at Kaohsiung’s Singda Harbor yesterday. Taking inspiration from Ukraine’s navy, which is using USVs to force Russia’s Black Sea fleet to take shelter within its own ports, CSBC Taiwan (台灣國際造船) established a research and development unit on USVs last year, CSBC chairman Huang Cheng-hung (黃正弘) said. With the exception of the satellite guidance system and the outboard motors — which were purchased from foreign companies that were not affiliated with Chinese-funded
‘CROWN JEWEL’: Washington ‘can delay and deter’ Chinese President Xi Jinping’s plans for Taiwan, but it is ‘a very delicate situation there,’ the secretary of state said US President Donald Trump is opposed to any change to Taiwan’s “status quo” by force or extortion and would maintain that policy, US Secretary of State Marco Rubio told the Hugh Hewitt Show host on Wednesday. The US’ policy is to maintain Taiwan’s “status quo” and to oppose any changes in the situation by force or extortion, Rubio said. Hewitt asked Rubio about the significance of Trump earlier this month speaking with Taiwan Semiconductor Manufacturing Co (台積電) chairman C.C. Wei (魏哲家) at the White House, a meeting that Hewitt described as a “big deal.” Asked whether the meeting was an indication of the
PERMIT REVOKED: The influencer at a news conference said the National Immigration Agency was infringing on human rights and persecuting Chinese spouses Chinese influencer “Yaya in Taiwan” (亞亞在台灣) yesterday evening voluntarily left Taiwan, despite saying yesterday morning that she had “no intention” of leaving after her residence permit was revoked over her comments on Taiwan being “unified” with China by military force. The Ministry of the Interior yesterday had said that it could forcibly deport the influencer at midnight, but was considering taking a more flexible approach and beginning procedures this morning. The influencer, whose given name is Liu Zhenya (劉振亞), departed on a 8:45pm flight from Taipei International Airport (Songshan airport) to Fuzhou, China. Liu held a news conference at the airport at 7pm,
KAOHSIUNG CEREMONY: The contract chipmaker is planning to build 5 fabs in the southern city to gradually expand its 2-nanometer chip capacity Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s biggest contract chipmaker, yesterday confirmed that it plans to hold a ceremony on March 31 to unveil a capacity expansion plan for its most advanced 2-nanometer chips in Kaohsiung, demonstrating its commitment to further investment at home. The ceremony is to be hosted by TSMC cochief operating officer Y.P. Chyn (秦永沛). It did not disclose whether Premier Cho Jung-tai (卓榮泰) and high-ranking government officials would attend the ceremony. More details are to be released next week, it said. The chipmaker’s latest move came after its announcement earlier this month of an additional US$100 billion
RSS