Japan... too, on the knife-edge...

The economy is always on the Knife-edge as far as expectations are concerned… same as told in the Harrod-Domar model… Every economy takes several rounds of exuberance (wrong-decisions) only to know later that we were actually hitting the line when the train has passed… More in depth… If we take Japan as instance, we see that prices are falling… If we see from suppliers’ perspective who sees prices as a signal of the aggregate-demand… With every easing supplier’s expect prices and demand to go up and they are supplying more and more everytime… Japan is a developed-economy and far from supply-constraints… When there are already unsold inventories more supply is likely to upset the growth conditions… Employment is not a problem, it is near the full-employment (constant), near 4-6%, so there is nothing to worry much… Real-economy is doing good… Real-interest rate is also near zero… Very good supply-conditions, internally… Everytime the policy-makers are committing for high inflation, people are supplying more which is responsible for deflation… People do not understand problems of liquidity-trap as many economists and politicians... Japan too should go for internal-devaluation like Germany, low prices and high real-wages, like told by Pigou… There is too much money in circulation… To tighten the supply-conditions and generate inflation Japan should increase interest-rates, reduce money-supply, increase borrowing-cost… Total cost will go up… Inflation will go up…