Two Japanese Prime Minister Candidates Pledge to Whip Deflation

Japan’s decades-long battle with deflation persists, despite past pledges by government officials to defeat it.

Now, two contenders to become Japan’s next prime minister join the list of those who’ve offered stimulus plans.

This Sept. 7 Bloomberg article excerpt provides details:

Two lawmakers battling to become Japan’s next prime minister both pledged to launch stimulus packages over the short term and to defeat deflation over the longer term, as they laid out their platforms Wednesday.

Former Foreign Minister Fumio Kishida said he would inject tens of trillions of yen (hundreds of billions of dollars) to help a Covid-battered economy, as he set out his policies in the race for leadership of the ruling Liberal Democratic Party.

Rival Sanae Takaichi, who is seeking to become the country’s first female prime minister, also said she would swiftly consider an extra budget to aid the economy, though she refrained from putting a figure on the size of the package. The amount would depend on how much was really needed and required careful consideration, she added.

Takaichi, a former economics professor, said she would prioritize the country’s 2% inflation target over achieving a primary budget balance. She said the government’s preoccupation with trying to balance the books had contributed to the failure to reach the target so far…

In his 2020 edition of Conquer the Crash, Robert Prechter provided a historical perspective on Japan’s economy as well as past stimulus efforts by Japanese authorities to defeat deflation:

Japan had one of the strongest economies in the entire world, growing at a 9% rate for 20 years up to 1973, and then a pretty strong rate of about 4.5% through 1994. From there, it’s averaged about 1%.

The reason Japan is in trouble was expressed in a November 1, 2012 headline from MarketWatch: “Japan Is in Worse Than a Deflationary Trap.” But it’s not worse than a deflationary trap. It’s just a deflationary trap. Here’s what the article says: “Policy makers have spectacularly failed. Brutal deflation persists.

Japanese officials tried monetary stimulus, including zero interest rates and quantitative easing.” Does that sound familiar? And here: “Past fiscal stimulus has ballooned the national debt to 200% of GDP.” Does that sound familiar, too? And finally, “The most troubling aspect of Japan’s malaise may be psychological.” That’s the key to the whole thing. When social mood changes psychology from ebullience to conservatism, a trend of expanding credit shifts to a trend of declining credit and therefore inflation into deflation.