Sayonara to Deflation in '06 (EWJ, ITF, VPL)

Robert Alan Feldman, chief economist for Japan at Morgan Stanley Japan, foresees an end to deflation in Japan in '06 but warns that the goodbye will be prolonged. However, Feldman believes the prolonging will "give the economy and financial markets time to solidify the structural gains of the last few years." His latest essay describes the difficulties of monetary policy and especially when handling deflation and trying to also coordinate with fiscal and structural policy. Feldman lists five points to ponder over regarding the coordination problem and five milestones to watch for.

Below is the introduction to his essay and a link to the full text. I also want readers to know that I have enjoyed reading and watching Feldman for years (for those in Tokyo that understand Japanese, watch the World Business Satellite on Tokyo TV nightly) and he remains one of the most informed and respected Japan economists. He can get technical at times but you will learn a lot from him.

Japan will say sayonara to deflation in 2006, but the goodbye will be prolonged. The direction of prices is clear, but the measurement, theory, and politics of changing monetary policy will be a labyrinth. Fortunately, the delays in saying goodbye to deflation will only give the economy more ability to solidify structural gains. With strong productivity growth continuing, both profits and wages can rise, while prices stay subdued and real growth becomes more self-sustaining.

Link to full text: Morgan Stanley GEF

Comments

[Steven Towns:]

For those interested also see Takehiro Sato of <strong>Morgan Stanley Japan</strong> who penned an essay, "The Dawn of a New Golden Age." He states, "There potentially will be three surprises for the Japanese economy in 2006. ... These surprises all support further euphoria in asset markets under near-zero or negative real interest rate conditions, in our view. Conditions also fundamentally differ from the bubble period, as valuations are in line with profit growth. We thus refer to the upbeat sentiment as euphoria, and not a bubble." Click the hyperlink on the essay title to read about the three surprises, but be ready for an economics lesson. I find "euphoria" to be an interesting word to use to describe the upbeat sentiment. I am still chewing on this.

2005 Dec 19 02:52 AM