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"This is not the "beginning of the end" of the Japanese economy. But it might be, and I hope it is, the beginning of the end of Japan's long recession. And if this is indeed the beginning of the end of Japan's long recession, it will also be the beginning of the end of Richard Koo's thesis that monetary policy is powerless in a balance sheet recession, and that only fiscal policy can offset private sector deleveraging. And we can only regret that Japan did not do this many years earlier, instead of wasting all those years and letting Japan's government debt/GDP ratio climb. Because that high debt/GDP ratio is the only reason why someone might want Japan's economic recovery but not want the higher interest rates that will accompany that recovery. Which is no reason to try to stop the recovery. Though it is one additional reason to regret not having done something like Abenomics a lot earlier." The strengthening of the Japanese economy in 2009/2010 despite the global recession shows that the Japanese balance sheet recession was already finished in 2010. One main reason was that Japanese investors repatriated their foreign investments. This has not changed in 2013, many Japanese investors sold their foreign bond holdings. The devaluation of the yen has further fueled potential inflation pressures in an economy that was not concerned by euro crisis or the long-term US weakness. Apart from demographic issues, recent deflation in Japan was caused by global slowing, the hedonic effect of a technology nation and by things like lower student or scholarship fees. The balance sheet recession had already finished before and this is the problem of Abeconomics: Addressing a problem that does not exist anymore.
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We well remember 2011: Plosser Says Inflation May Prompt Fed to Raise Rates in 2011
Toggle Commented May 14, 2013 on Fed Watch: Plosser on the Exit at Economist's View
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May 14, 2013