With this month's hike in Japan's consumption tax from 5% to 8%, investors are fearful of a repeat of 1997's recession and resulting deflationary spiral

With this month's hike in Japan's consumption tax from 5% to 8%, investors are fearful of a repeat of 1997's recession and resulting deflationary spiral. This fear ignores several key differences. First, there's no Asian currency crisis to deal with now, unlike in 1997. Second, Japan's banks are in much better shape than during the 1990s when they held off writing off bad debts. Third, the central bank is engaged in a massive experiment in monetary stimulus this time around. Finally, today's labor market is very tight, compared to back then. The last point is crucial and goes to the heart of one of the biggest myths about Abenomics. That is, with or without Shinzo Abe, Japan's sharply declining working-age population was always going to lead to a tight labor market, resulting in wage pressure and higher inflation. Full article here: (VIEW LINK)


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