COLUMN-Abe's threat to banks and the old: James Saft

Comments (1)
Vernierengine wrote:

This is not a very well thought out piece. Japan has been in deflation for the past two decades thanks to the pro-deflationary policies of the BOJ and the MOF, yet the thing the author most fears is too much inflation? Clearly that is the number one priority now.

The author’s assertions that banks and the elderly will not be able to bear the pain is also short-sighted. Has the author considered what will happen to the capital bases of banks if major Japanese corporates go bankrupt from the super-strong yen and even more deflation, resulting in large corporate defaults and irreparable loss of customer base? Not to mention the effect on bank’s large holdings of equities (something which I’m sure the author has also found time to criticize). Clearly Japanese banks would happily take a return to inflation/rising asset prices/lower or negative real interest rates to spur borrowing etc etc for a slow rise in yields. If yields even have to rise – keep in mind that as of a week ago JGB 10y yields at below 0.7% were the lowest in ten years time! The market knows what the author doesn’t: that the BOJ can just buy more bonds as part of a holistic inflation-fighting strategy.

As for the elderly, yes a return to inflation will be bad for this constituency. However the real question is, should Japan care? The past 20 deflationary years have been a paradise for pensioners on fixed incomes. They’ve had a good run, while the young and businesses and the government have taken all the pain. If deflation can be defeated and Japan can return to an inflationary track like a normal country then then the benefits to society as a whole will far outweigh the losses. And don’t try to say it can’t because of a shrinking population – Germany also has a shrinking economy but consistently positive inflation.

In sum, the author has an unexplainable fixation on preserving benefits for the privileged (pensioners) and a mistaken set of assumptions for the effect on banks from inflation.

Dec 18, 2012 12:34am EST  --  Report as abuse
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