A key element in the plans of Japanese Prime Minister Shinzo Abe to end the country’s two decades of stagnation is to inject a dose of inflation into the economy. During the 20 years of deflation, Japanese have been reluctant to spend, knowing prices will be cheaper tomorrow. Abe figures inflation around 2% will change that. But retailers are worried that inflation will turn customers off altogether. So when the consumption tax was raised to 8% in April, many storekeepers absorbed the increase. As a result, in September Japan’s consumer price index went down instead of up.
