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Japan's Economy Still Needs Help After $3 Trillion Spending Spree

Thursday March 15, 2018 comments

Interest rates are rising in many of the world's major developed economies, with one big exception: Japan.

The world's third-biggest economy is stuck with negative interest rates and an enormous easy money program. That contrasts starkly with the United States and Europe, where central bankers are more focused on how quickly to hike rates and wind down the massive stimulus measures they introduced after the global financial crisis.

The reason for the difference is inflation. Or in Japan's case, the persistent lack of it.

Inflation has been steadily rising in both the United States and Europe over the past couple of years. Mild price increases are seen as positive because they encourage consumers to spend, generating more economic activity.

But since Japan's economic bubble burst in the early 1990s, prices have mostly been stagnating or falling. That's bad news economically because declining prices encourage consumers to put off spending.

"If you're 40 years old, you've spent half of your life in a world where prices tend to fall rather than increase," said Takuji Okubo, managing director at consultancy firm Japan Macro Advisors. It's a tough mindset for many Japanese consumers to shake off, in Okubo's view.