Japan has always been the Neo-Keynesian poster boy for its ability to maintain low consumer price inflation concurrent with high levels of government debt and central bank stimulus. This has changed in recent days as the BoJ defected from the central bank tightening herd and continued easing. The results are astounding:
This historic move was not enough to sway the highest ranking member of the BoJ, Governor Haruhiko Kuroda, who today insisted “The Bank of Japan should persistently continue with the current aggressive money easing”. He claims the inflation seen in the US is “demand-pull” inflation while Japan is experiencing a “cost-push” due to rising commodity and energy costs. Kuroda believes these factors will prove temporary, justifying further central bank support.
So what is the Japanese government’s plan to relieve citizens of this inflationary burden? They intend to boost demand:
“For now, the government is looking to deal with the challenge of the weak yen and higher commodity prices by warning against sharp currency moves and offering support to businesses and households squeezed by soaring energy costs. Prime Minister Fumio Kishida is set to unveil new aid measures in the coming days.”
If they didn’t have a “demand-pull” problem before, they’ll surely have one soon! When the citizens have had enough, and the BoJ is forced to tighten, it will be interesting to see the reaction in Japanese markets, which have enjoyed unrivaled levels of easy money policy for the last decade: