There is no solution in Japan without an increase in wages

- "The Japanese economy is caught in three traps:
• negative inflation, which increases real interest rates and keeps the country in deflation;
• fiscal deficits and the level of public debt, which has become huge;
• the appreciation of the yen, due to capital inflows and the trade balance surplus."
- "The usual remedies do not seem to be effective:
• increasing the deficit and the public debt further to boost the economy and offset the appreciation of the yen would be irresponsible;
• conversely, increasing VAT to reduce the fiscal deficit would eventually worsen deflation (as in 1997);
• foreign exchange interventions to weaken the yen may be ineffective, as in the past."
- "We believe that the only solution would be an increase in wages: it would lead to positive inflation and stimulate consumption and activity and would reduce the fiscal deficit, it would reduce the trade surplus and would weaken the yen; it would not have any negative effect on companies, which have excess savings and huge financial reserves due to the distortion of income sharing."

Natixis Flash Economics 456 20100914

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