Land of the Rising Price
Japans recent stretch of inflation has caused a societal change in a country that has seen generations of steady, and even falling, prices. The return of inflation proves to be an economic battle between Japans increasing costs, domestic consumption and its ability to stabilize its money supply. In attempts to help resolve these economic battles, the Bank of Japan, longing to establish normal monetary policy, is still reluctant to increase its rates and money supply which would deter the consumer price-gap between certain goods. Japan is now stuck in a non-preemptive situation where inflation is definite and economic terms are tested. The return of inflation in Japan has and will cause many effects to consumer consumption, not only within the country, but also globally. The effect of inflation from a single economy to the global scale can be caused by a country’s trade consumption. Regarding trade in Japan, as the price levels are increasing for exports, consumers are losing purchasing power and therefore decreasing the demand for certain products. Countries that depend on Japan for consumption of certain goods are demanding less. Simply put, countries are importing lesser amounts and hurting the profits of Japan based companies. When companies have little profits to work with, it reflects the wages of employees. With this economic spiral, Japan is witnessing a large price-gap between wages and the amount of spending. On the supply side, Japan is producing less and causing cost-push inflation. This causes a shift to the left in the supply curve and an increase in prices due to efforts in maintaining profit margins. Consumption, therefore, is diminished even more. The Bank of Japan recognizes these problems but is still impeding the process by not raising the nominal interest rate enough. In other words, they’re not increasing money supply to make up for inflation. To understand, we need to refer to the Fisher equation which states...