Japan Still Grapples with Deflation Despite Negative Rates

A year ago, the Bank of Japan introduced a negative interest policy, yet inflation remains stubbornly low.

In 2016, the nation's consumer price index saw a year-on-year drop for the first time in four years. Plus, personal consumption has been stagnant.

The next step to jumpstart Japan's economy might be fiscal stimulus measures.

A Jan. 29 Japan News article elaborates:

[The Bank of Japan] is still far from achieving its inflation target of 2 percent. The nation's departure from deflation is falling behind the expected timeline. It is now a widely shared view that achieving higher price levels and boosting the economy with monetary easing alone will be difficult. Expectations for fiscal stimulus measures have therefore been growing. …

Expectation shifting to stimulus

Limitations in monetary policy measures have begun to be perceived in the United States and Europe. In financial markets, expectations are shifting to the economy-boosting effects of fiscal stimulus measures, including investment in infrastructure projects under the Trump administration. In major European nations, where national elections are scheduled this year, initiatives to stimulate the economies through fiscal measures likely will grow. …

It is possible that Japan, too, will be required to take fiscal measures to boost the economy while the central bank maintains the current monetary policy framework.

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