Japan shows studies by passing a post bubble Funk

Federal Reserve Chairman Ben Bernanke is under attack for too much do lift to reduce of unemployment and inflation.

Do his Japanese counterpart, Masaaki Shirakawa of Bank Japan, is under attack for too little.

In the United States, the Central Bank here has criticised too much to do. Japan criticised the Central Bank has been doing for too little. Should you do more? WSJ's David Wessel question.

Japan is a puzzle - and not only foreign visitors, that issues such as a stagnant economy can feel so prosperous. Academics question their theories avoided me like Japan the deflationary spiral predicted and instead the suffered only a decade low-grade deflation. Foreign central bankers and market analysts question why the Bank of Japan no longer do. Japanese politician questions can force if the Central Bank, more aggressive to be. The ruling party has anti-deflation League and a band of parliamentarians want the BoJ type a destination for inflation to push it to create some.

Since 1997, the price level in Japan has dropped more than 3%. The BoJ had reached 1% inflation every year, prices would 14% are increased. After taking account of price changes, the Japanese economy has grown at a rate of only 0.9% in the last two decades. And as the Bank of Japan said this week, "recovery seems to stop." There still are, hopefully Japan "to a moderate recovery path" will return as emerging markets and commodity producers drive global growth predicted.

Japan, a little inflation would be welcome. It would make inflation-adjusted interest rates low. (If interest rates are real and 1% deflation 2%, or inflation, interest rates 3 are %.) (But if inflation of 2% is, then the real interest rates minus 1% credit makes much more attractive.) It would facilitate paying Japan large debts. It would rather the yen to cheapen the aid exports.

American pundits, policy makers and economists should be humble a bit on the assessment of Japanese politics. If the United States is booming, it was easy for American experts contend that if only Japan took your advice, everything would be fine. These days, is the United States learn how difficult it is to climb a post bubble funk from the. Adam Posen, now at the Bank of England and once a stiff critic Japanese, earlier in this year said that a lesson he learned from Japan is U.S. Economist ", deal with more humility about what we do are monetary policy able."

And from a Japanese style has controlled lost decade successfully the U.S. economist at capital economics in London express skepticism about the consensus that prompt action by the fed and Government. "The policy response has been greater," you conceded, "but the macroeconomic results got worse" - a deeper recession and increased unemployment as Japan, suffered when his bubble burst in the 1990s.

Although it is going to swallow that a Central Bank can thwart deflation not hard all this by the BoJ's eye view.

One, they say, we done a lot of Monetary Union have relaxation, long before we were taken from the "Lehman shock", as it is known in Tokyo and the resulting dip in our exports. Our 2003-07-fight against the deflation that was successful for a time. More increased in terms of the size of our economy, our portfolio of bonds and is greater than that of the USA or Europe. (OK, says the critics, but so what?) It's not what you in the past did what counts. It is what you do now are.)

Two, we do a little more asset purchase, even dabbling in corporate bonds, real estate trusts and business bank loans direct credit where it's needed. But 10-year Japanese Government bonds are generating less than 1.2% already pretty low. We're not sure massive Bernanke style would do quantitative easing much good. (Neither Mr Bernanke is, says numbers, the critics, but he that has something to do, beats, that has nothing to do.)

Bloomberg News Ben Bernanke, links with Masaaki Shirakawa chats.

Three much of Japan's deflation is beyond our control, you say. Already low inflation was down by competition from China and other emerging markets down. Mr Shirakawa, in talk, argues that Japan is unique: the prospect of a slowdown in economic growth in the future, he says, leads people to expect less inflation in the future. (Maybe, says the critics but if we keep central bankers responsibility for inflation, if not you for deflation, are also responsible?)

Four, we don't think deflation is Japan's major economic problem. Japan suffers from a shrinking population disappointing crippling regulation and productivity growth. An obstacle to the establishment is nothing political standstill. BoJ medicine can heal these evils. (Says deflation may not Japan's big problem of critics, but isn't it that shouldn't be a problem to solve a Central Bank in the position?)

The Bank of Japan, with the benefit of indulgence, some mistakes made. It rates too low held too long, a bubble fuel to help. It could not act before deflation infected its economy, shows that it is much deflation easier to than to avoid out of it. And it prematurely moved before the economy was ready to tighten. The Fed what learned from everything.

Now that is BoJ again tested. The betting is that it finally the Fed will follow, and buy more bonds of some sort. It is difficult for an outsider to say he believes lack the ability to eliminate the deflation or lack the will. But it's hard to get the Japanese economy to much traction if now whip can not deflation.

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