The Puzzling Bank of Japan

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When you read about the heads of the world’s other major central banks, Ben Bernanke looks better by the day:

Masaaki Shirakawa, governor of the Bank of Japan, said that upside and downside risks to the economy were “roughly balanced”.

The median of forecasts by the BoJ’s policy board is now for inflation of minus 0.5 per cent in 2010 and minus 0.2 per cent in 2011 compared with October’s forecasts of minus 0.8 per cent and minus 0.4 per cent.

The BoJ made clear, however, that deflation would be weaker “due mainly to the rise in crude oil prices” while its statement continued to say that “substantial slack in the economy as a whole” was weighing on the consumer price index.

What on earth is balanced about this? Rising energy prices and falling non-energy prices is a recipe for disaster. The Japanese growth fiasco is really remarkable. If you think we have debt problems, note that they’re at 200 percent of GDP. And since their population is shrinking, it’s extremely hard to shrink the debt-GDP ratio even if the economy grows in per capita terms.