Bloomberg News

Bank of Japan Out of Ammunition for Deflation Fight, Motani Says

August 29, 2012

More easing by the Bank of Japan would do little to counter falling prices and spur growth, according to economist Kosuke Motani, the author of a best- selling book on the nation’s deflation woes.

The theory that monetary policy can overcome deflation is “just like a religion” for neoclassical economists, Motani, 48, of the Japan Research Institute, a private think-tank, said in an interview in Tokyo this week. “They insist if money is supplied sufficiently, deflation won’t occur. But that’s not the case for Japan.”

Ruling and opposition lawmakers are urging the central bank to do more to help the nation overcome more than a decade of falling prices. BOJ Governor Masaaki Shirakawa argues that monetary policy alone cannot solve the problem of weak demand in the world’s third-largest economy.

Japan is in “non-monetary deflation,” says Motani, who wrote “The Real Face of Deflation,” which has sold more than 500,000 copies since publication in 2010, according to publisher Kadokawa Shoten Co.

Demand for goods is declining due to a shrinking working- age population, while the level of supply is maintained because automation helps productivity and keeps production levels high, resulting in falling prices, he said. Companies are hesitant to pass on higher fuel costs by charging more for their goods, and consumers aren’t spending money from their savings, he said.

“The BOJ has exhausted its ammunition,” Motani said. “So, no matter what the BOJ does from now, it will have little effect on non-monetary deflation.”

Asset Purchases

Japan’s central bank deployed so-called quantitative easing a decade ago, buying bonds and other assets to support market prices and stimulating the economy through low interest rates. Now, with benchmark borrowing costs near zero, the primary policy tool is an asset-purchase fund.

Takeshi Miyazaki, a Democratic Party of Japan lawmaker and a leader of the ruling party’s anti-deflation group, said in April that the central bank should pursue “bold and large-scale monetary easing.”

Instead of monetary stimulus, Japan should raise the minimum wage and tackle the aging population problem, including by increasing incentives for people to have babies, Motani said.

“Foolish companies, which cannot innovate and swallow monetarists’ assertion that deflation is caused by the BOJ, will disappear and will die,” Motani said.

To contact the reporters on this story: Keiko Ujikane in Tokyo at; Masahiro Hidaka in Tokyo at

To contact the editor responsible for this story: Paul Panckhurst at

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