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Former Bank of Japan Economy Chief Discusses Deflation

Despite Japan's massive inflationary efforts during the past several years, deflation appears to be getting the upper hand.

Moreover, a former chief economist for the Bank of Japan says the central bank is "powerless" to stop it.

Read this excerpt from an April 3 Bloomberg article:

The coronavirus pandemic and plunging oil prices could pull Japan back down into deflation and the Bank of Japan is powerless to fight it, says its former chief economist.

"The BOJ must seriously consider the risk of a return to deflation," Hideo Hayakawa, who ran the bank's economic research from 2001 to 2007, said in an interview Friday. "Inflation can easily fall below zero with the impact of oil" and other things.

JapanDeflation

Analysts are now forecasting a deep recession for Japan, but a return to deflation could mean something more damaging and long-lasting. Prime Minister Shinzo Abe and BOJ Governor Haruhiko Kuroda have been fighting for years to end a negative cycle of weakness in prices, wages and growth.

Hayakawa isn't the only one who sees a dire outlook for Japan's prices. Analysts at BNP Paribas SA last week said they expect the BOJ's main gauge of inflation, prices of goods other than fresh food, to go negative in April for the first time since 2016. They forecast the index falling to around -1% by year's end.

Even though the coronavirus is partially being blamed for Japan's economic woes, keep in mind that troublesome signs were appearing before the pandemic.

This is from the March Elliott Wave Financial Forecast:

Reports attributed recent economic weakness to coronavirus disruptions of "demand, trade and supply chains," but it is important to realize that the global economy was listing badly before the virus appeared. In the second half of 2019, EWFF documented a slew of weakening economic measures and deteriorating credit conditions. Japan's recent report of a year-over-year GDP change in the fourth quarter indicates that the world's third largest economy shrank at an annualized rate of 6.3%.

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