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Japanese economy faces the challenge of deflation

The Japanese economy is today facing the challenge of deflation which has dogged the country a couple of times over the last 20 years. The massive recession in the 1980s took many years to overcome and indeed the stock market has never reached the highs of the 1980s even 20 years on. The news of deflation in the Japanese economy is possibly a worst case scenario which will see prices come under pressure which will then force cost reductions, increase unemployment and put pressure on the government budget.

This is something of a vicious circle as increased unemployment would mean less money for the Japanese consumers to spend which will see prices come under further pressure and lead to greater unemployment numbers. This is also a fear which many have for the UK and the US where despite massive investment of taxpayers money there has been little improvement in prospects over the last few months. If the UK or the US were to move towards deflation this would have a drastic impact and take literally decades to fully recover from.

While many have criticised the UK authorities over their actions to date the threat of possible deflation is a far worse scenario than increasing UK national debt to over £1 trillion!

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