Targeting inflation would not work because unemployment is
moving in the band of 4-5%. The range in which inflation becomes almost dead
and do not respond to changes in unemployment rate. The capacity of the economy
and the unemployment can not fall further. Again, its a limit. The economy has
reached it. But since poverty is still there at 16%, we need to do better. Poverty
there is not due to unemployment it is due to yen and its value. The hourly
wages in Japan is near 750 yen, so if a worker works 8 hrs a day he gets 6000 yen
a day and in INDIA they get Rs 300 a day. So we can match the relative purchasing
powers and we find yen cheap and rupee strong. The wage a person earns in Japan
is also sufficient for subsistence and the wage in INDIA, too, is sufficient.
But both are subsistence wages neither too much nor too less, just sufficient
for subsistence. Japan will need a much bigger stimulus to affect the threshold
but certainly prices will not rise. Probably Japan has left too much inflation
bases behind and opted for a very high base period. It is very natural for
prices to go down because the base period we chose for the economy was very
high and prices will retreat to their original place. The best strategy would
be to float a lower denomination of yen and let the economy deflate and that
would make the cash Japanese people sitting on more valuable in terms of
purchasing power. Eventually people will start feeling richer and some of the
poverty will be washed away. I hope poor people are also sitting on too much
cash…
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