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Paul Krugman's New Japan: Reflation Is On

Published 04/06/2013, 02:21 AM
Updated 07/09/2023, 06:31 AM
NYT
0.44%
NWSA
2.00%
IMOB
-2.46%

Paul Krugman's dream for Japan is finally coming true as the BOJ embarks on a round of massive monetary expansion.

Paul Krugman (NYT): Let it not be said that the scribblings of academic economists have no effect. Some of us have been urging the Bank of Japan to get truly aggressive and adventurous on monetary policy — and it’s happening!

And it only took 15 years.

Seriously, this is very good news. Japan is finally making a real effort to escape its deflation trap. We should all hope it succeeds.

Indeed we should all hope that Japan's central bank can solve the nation's problems, which are ultimately structural in nature. Krugman is referring to the ongoing deflationary trend resulting from the burst of Japan's property bubble - as shown in the land price index below.

Land price index
Japan's monetary base has already expanded dramatically over the past three years, and is now expected to grow to multiples of that.

BOJ Monetary Base
Markets have responded in a "textbook" fashion. The yen sold off sharply, while banks and property shares rallied.

JPY

Daiwa ETF TOPIX-17 Banks

Daiwa ETF TOPIX-17 Real Estate
The "reflation" of Japan is on.

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