Even that isn’t the whole story. Along with ugly demographics, Kuroda faces a Japanese public that has learned not only to live with deflation but also to enjoy it. This will sound like economic blasphemy to many. Nobel laureate Milton Friedman sounded plenty scary when he warned of the “scourge of deflation” — a beast that slams financial assets, boosts debt-servicing costs, undermines corporate profits, dents consumer confidence and lowers tax revenue.
Just as there is good inflation, though, many in Japan have benefited from good deflation. By 1990, asset prices weren’t the only things that had veered into bubble territory in Japan. Arguably, the entire economy had. As the 1970s gave way to the heady 1980s, costs surged throughout the economy: food, transportation, service fees, power, telecommunications, education, entertainment, apparel, you name it.
The story of Japan these last 20 years, from the government to banks to companies, has involved keeping consumer prices steady. Deflation has acted like a stealth tax cut for households and restored some sobriety to costs.