Question

Japan has been mired in a recession/depression for a couple of decades now, and has experienced very low inflation, and in some cases deflation. The Japanese Prime Minister (Abe), Chairman of the Bank of Japan (Kuroda), and others have desperately tried to induce inflation in the economy, thus far without success. Kuroda has been using what some call the “Peter Pan” strategy, where “Dreams do come true, if only we wish hard enough.” With that backdrop, what are “animal spirits” and how does moderate inflation relate to the Japanese macroeconomy?

Answer 1

Answer : " Animal Spirits" means that emotion of the human being related to particular return. It means that individual are losing confidence at particular time duration. They are not interesting in savings as there is Zero or negative interest rate which shows that no more interest has been gained by the individual. Emotional feeling of japanse individual is that no saving or investment are useful for them.

As we know from the last few decades the country has suffered deflation after the effect of real estate. In 2016 the Chairperson has implemented year of near zero and negative interest rate. Abe ( Prime minister) hoped that these monetary policy work in the economy and all problems are sort out. But this is not possible so the solution to all problems is moderate inflation. Moderate inflation means that rise in the price but not too fast nor too slow.

• With the moderate inflation , real wages are downward and flexible.
• Moderate inflation encouages investment.
• Japanse country would export more competitive
• Banking system become stronger and rate of interest increases.
• Stability in fiscal policy
• Interest rate has been start rising.
• Encourages productivity and GDP start rising at greater phase.