Japan's economy-Price pressure
JAPAN’S economy is showing signs of recovery but, in the long term, its prospects still look grim. New official figures on April 30th showed that household spending,wages and job openings all improved last month. However, the spectre of deflation has still to be banished. March was the 13th succcessive month of year-on-year declines in inflation: excluding volatile fresh-food costs, they were 1.2% lower than a year earlier.
To the politicians, the positive news on spending and employment gave a sunny start to Golden Week, Japan's week-long national holiday, which began on Thursday. But beneath the headline figures, the details are less glittery. Household consumption is up in large part because of temporary subsidies on low-energy appliances and cars from last year's stimulus package, which are due to expire soon. The improvement in pay was a paltry 0.8% year-on-year. Despite the rise in vacancies, the ratio of employment-seekers to jobs is still a gloomy two-to-one.
The problems facing Japan are well understood: there is no growth, and a fiscal-deficit timebomb: gross debt is approaching 200% of GDP, far worse than any other rich country. The country’s political class is just starting to make moves to tackle the debt. The experience of Greece has chastened some of them. However, it is hard for them to convince the public of the need for less spending when the country is still in the slipstream of a once-in-a-century downturn.
To spur growth, the politicians look to the Bank of Japan rather than in the mirror, or at the deadening regulations and protectionism that hold back the economy. Central banks in advanced countries are supposed to be independent, but in Japan the government has long applied varying degrees of pressure. The new government of the Democratic Party of Japan wants the BoJ to introduce inflation targeting, with a target of positive inflation of 2%, talking as if the mere act of declaring it would make it come true.
The politicians are also expecting the BoJ to give growth a shove by means of its monetary policy. With an official interest rate of 0.1%—which the bank left unchanged at its meeting on Friday—it has little scope to do much more through conventional means. Besides, central bankers are more accustomed to trying to take away the punch bowl than mixing the drinks.
Giving a press conference after the central bank’s meeting, the governor, Masaaki Shirakawa, made cryptic comments about an as-yet unexplained initiative that “will not be an orthodox measure for the central bank”. Its official statements talked vaguely about looking into “possible ways to support private financial institutions in terms of fund provisioning”, or in plain language, helping the private banks to lend more to businesses. If the BoJ has a plan to boost economic growth and exorcise the spectre of deflation while avoiding a Greek-style debt panic, it is clearly not yet ready to share it.