Japan’s Inflation Problem and the Political Decision to Solve It

Japan is facing a severe fiscal crisis, and the Bank of Japan (BOJ) is struggling to find a solution. In January 2021, Japan’s core Consumer Price Index (CPI) for all items less fresh food – the index the BOJ uses for its 2% inflation targeting – jumped by 4.2% from a year ago, the worst rate since 1981. Price increases across a broad range of goods and services have driven this inflation. The BOJ has been unable to contain it despite its reckless damaging interest-rate and money-printing policies. To solve Japan’s horrid fiscal mess, a political decision has been made to fuel inflation and forget about the 2% target.

The BOJ’s Monetary Policy

The outgoing boss of the BOJ, Haruhiko Kuroda, and the incoming boss, Kazuo Ueda, have agreed to keep the reckless damaging interest-rate and money-printing policies. Kuroda has staked his tenure on these policies and cannot now back off, no matter what inflation does. Ueda, who will become boss in April, sings from the same hymn. Until then, the BOJ will continue to fuel inflation with all its might.

Major Categories of Inflation

Food prices have jumped by 7.3%, the worst since 1980. Meals outside the home have increased by 5.9%. Housing less imputed rent is up by 4.7%. Repairs and maintenance are up by 8.2%, household electricity, gas, water, and sewage by 14.9%, durable household goods by 11.1%, communication by 7.1%, clothing and footwear by 3.1%, and services related to clothing by 5.0%.

Government Intervention

The Japanese government has implemented an energy assistance program to help hold down inflation. The government controls large parts of the economy, including the sizeable universal healthcare system, the public transportation system, and education. Despite this, inflation has still been able to push deeper into the economy.

Related Facts

• Inflation blew through the BOJ’s inflation target in April 2022.
• There have only been three-month-to-month jumps of 0.5% or more since the beginning of the inflation episode.
• The BOJ’s reckless damaging interest-rate and money-printing policies have not been able to contain inflation.

Key Takeaway

Japan is facing a severe fiscal crisis, and the BOJ has been unable to contain inflation with its reckless damaging interest-rate and money-printing policies. Therefore, to solve Japan’s horrid budgetary mess, a political decision has been made to fuel inflation and forget about the 2% target.

Conclusion

The BOJ has been unable to contain inflation with its policies, and government intervention has not been enough to stop it. Therefore, the only solution to Japan’s fiscal crisis is to fuel inflation and forget the 2% target. This risky decision could have serious consequences, but it is the only way out of the current situation.