The PSA Japan Weekly Research Round-Up for the week ending 8 January, 2021

 The Weekly Comment Summary
Pelham Smithers examines Japan’s inflation conundrum.
Japan has demonstrated, through almost two decades of quantitative easing, that it is not sufficient to print money to get inflation. Like information, money is only useful if it is put into motion – and like information, it gets more useful the faster it moves – as otherwise, it can easily sit around or else get put into financial assets, driving up these asset prices, but little else besides. Even when it is put into motion, if it gets used in such a way as to drive up transactions, then according to the MV = PT equation, then you still don’t get inflation.
Normally, we don’t want inflation, and so if you have a situation where money is printed, and it goes into a mixture of pushing up financial assets and increasing transactions – ie the US experience in recent years – then you tend to be pretty happy. However, sometimes you do want inflation – for instance, to reduce the real level of debt in an economy. That is arguably the situation in Japan, where debt: GDP is approaching 500%. What you certainly don’t want is what is happening at present, with CPI heading deeper and deeper into negative territory. For November, the Japan’s nationwide CPI was -0.9%, while the December figure for the Tokyo region, which can be viewed as a lead indicator, is -1.3%.