No Fear

What about government policy, like taxes and spending—can we learn anything from Japan?
Confidence in the government's capability is very important. In Japan, the government gave very negative signals, and the expected rate of growth declined.

What is going to be the reaction today to inflation and the "price gap" in Japan?
There will be protests. Many people will demand populist policies, like subsidies and public works. Already the opposition parties are advocating subsidies for people suffering from inflation. The momentum for reform is declining. This endangers fiscal stability and means higher taxes and lower future growth. This would take Japan back to the 1990s. So despite the substantially lower inflation dangers in Japan, I wouldn't say that the situation is favorable right now.

© 2008