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Forex Trading Reviews & News 
Anybody who grew up in the developed world learned from an early age that inflation was a bad thing; an evil beast to be kept at bay with swingeing cuts in public expenditure and hikes in the cost of borrowing.
So it comes as a surprise to learn that the world’s second largest economy is hoping to see inflation rise to 1% and that the Bank of Japan is being tasked to make this happen. However, a little inflation is a necessary evil; particularly when faced with the bigger problem of long-term deflation which is afflicting the Japanese economy. Deflation is the term used to describe falling prices.
At first sight, it is appealing from the perspective of a consumer since it means that the goods they buy are getting heaper. However, in a deflationary economy, people put off major purchases (since the item will be cheaper later) which depresses demand and slows economic output. The most recent set of figures show that the consumer price index fell by 1.2% in December; its biggest monthly fall since the index began in 1970. Whereas raising interest rates tends to choke off inflation, reducing them ought to stimulate the economy and promote consumer spending.
However, the Bank of Japan already has rates at near zero and has no room for manoeuvre in that area. A second tool which has been employed is “quantitative easing”, or pumping new money into the economy to stimulate growth. The Japanese were the originators of this strategy, but when they tried it the past, the measure was unsuccessful against deflation. On a positive note, Japan’s Q4 2009 growth was better than expected, coming in at 1.1% which equates to an annualised rate of 4.6%.
So it comes as a surprise to learn that the world’s second largest economy is hoping to see inflation rise to 1% and that the Bank of Japan is being tasked to make this happen. However, a little inflation is a necessary evil; particularly when faced with the bigger problem of long-term deflation which is afflicting the Japanese economy. Deflation is the term used to describe falling prices.
At first sight, it is appealing from the perspective of a consumer since it means that the goods they buy are getting heaper. However, in a deflationary economy, people put off major purchases (since the item will be cheaper later) which depresses demand and slows economic output. The most recent set of figures show that the consumer price index fell by 1.2% in December; its biggest monthly fall since the index began in 1970. Whereas raising interest rates tends to choke off inflation, reducing them ought to stimulate the economy and promote consumer spending.
However, the Bank of Japan already has rates at near zero and has no room for manoeuvre in that area. A second tool which has been employed is “quantitative easing”, or pumping new money into the economy to stimulate growth. The Japanese were the originators of this strategy, but when they tried it the past, the measure was unsuccessful against deflation. On a positive note, Japan’s Q4 2009 growth was better than expected, coming in at 1.1% which equates to an annualised rate of 4.6%.
