Saturday, December 27, 2008

Japan sliding back into its 90s style deflationary depression

Japan is sinking deeper into recession, according to reports from The Washington Times, based on the International Monetary Fund. Japan’s output decreased over 8% in November.

Japan experienced repeated bouts of deflation during the 1990s after real estate and stock market bubbles burst around 1990. Japan’s example may bode poorly for western countries as a whole dealing with the current crisis. But Japan, unlike the US now, is faced with a soaring yen.

With deflation, both businesses and consumers tend to hold on to cash and wait for prices to get even lower. The problem is particularly persistent in electronics and computers, where technological advance tends to drive down price anyway. And this is a very important cornerstone in Japan. With the auto industry that should be less so, because Japan has done better than Detroit on making fuel-efficient cars that will be in demand.

The link for the Dec. 27 story by David M. Dickson in the Washington Times is here.

The International Monetary Fund has a survey report on the global financial crisis dated Dec. 15, 2008 here.

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