Inflation Targeting will not Help Japan...

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…