Abe’s "2.0 Target" requires much more

Japan falls back into deflation for the first time since 2013, but the Bank of Japan seems really optimistic that the inflation rate will rise back to 2% later this year. Almost all the developed countries are experiencing a low inflation currently. The US Fed has decided to maintain its current zero interest rate due to the low inflation rate. Moreover, fall in energy prices and commodity trading will have the negative effect on the inflation. The deflationary pressure does not just come from the outside world, but also from the domestic. In 2014, the Japanese government decided to raise the Value-added tax. This was said to give the market a sign of confidence; however, the increase of VAT clearly makes goods and services more expensive. Moreover, Japanese employers have been reluctant to invest or to raise their employees’ income, due to the shrinking workforce. If Abe wants to keep his promise, the Bank of Japan has to expand its QE program and the government has to increase its expenditure and reduce taxes. Otherwise, it is impossible to achieve Abe’s “2.0 Target".