This video is a follow on from the previous two videos about Japan. The first dealt with the Bonds, Risks and Yields and Pricing. The second video dealt with difference between QE and YCC, currency creation and inflation. If you haven’t seen those videos, I would recommend you doing so before watching this one.
Now, that we have an understanding of the terms and approaches, we can better appreciate what has been happening in Japan over the past however long.
The BoJ and the FED
So let’s do that, but let’s keep our focus on QE and YCC.
According to Investopedia … “Following the Asian Financial Crisis of 1997, Japan fell into an economic recession. Beginning in 2001, the BoJ began an aggressive Quantative Easing program in order to curb deflation and stimulate the economy. The Bank of Japan moved from buying Japanese Government Bonds to buying private debt and stocks. However the Quantative Easing campaign failed to meet its goals. Between 1995 and 2007, the Japanese Gross Domestic Product (GDP) fell from roughly $5.45 Trillion to $4.52 Trillion in nominal terms, despite the BoJs efforts.”
So, in the late 1990s, the Japanese authorities tried QE, but that failed to get the Japanese Economy moving, so they embarked on YCC. Bear in mind that YCC is a more extreme operation than QE.
As I said in the previous video QE and YCC expand the money supply. Both operations create currency and currency creation adversely affects a currency – causing inflation.
Does QE cause inflation?
One pertinent question perhaps to ask at this point is, “Does QE, in fact, cause inflation?”
According to Investopedia … “There is disagreement about whether Quantative Easing causes inflation and to what extent it might do so. For example, the BoJ has repeatedly engaged in QE as a way of deliberately increasing inflation within their economy. However these attempts have so far failed with inflation remaining at extremely low levels since the 1990s”
So, Investopedia seems to be citing Japan as a country that disproves the assertion that QE causes inflation .
Inflation and Deflation in Japan
Let’s therefore have a closer look at the situation in Japan to ascertain whether Investopedia are correct or not in making this claim.
Unlike most other countries, Japan doesn’t have much inflation at present. In March of this year inflation stood at 2.2%.
Indeed, a recent low inflation point, not so long ago, was in November 2020 when Japan had minus 1% Year on Year inflation. This is remarkable given the situation that much of the world finds itself in today.
The problems that Japan has been facing over the past few decades has not been with inflation, but with deflation. So, let’s look at why this might be?
