Japan's wholesale price index has consistently been on the rise since December 2009 due chiefly to rising oil and food prices. But the consumer price index has fallen year on year for three years in a row. One reason behind the decline in the CPI is the rising influx of cheaper, high-quality products from overseas. This is reflected by globalized Japan's descent into its first trade deficit since 1980 and by the rivers of red ink flowing from its once mighty electronics makers.
As tax revenue continues to fall and the budget deficit stays big, the government's fiscal policy options are starting to run out. As a result, expectations are mounting for a monetary solution to the ailing economy.
To cope with the persistent decline in consumer prices, the Bank of Japan has basically maintained a so-called zero interest rate policy since February 1999. In addition to various measures to boost market liquidity, the central bank effectively set an inflation target last week, saying it would manage monetary policy toward its goal of achieving a 1 percent annual gain in the consumer price index. However, there are already doubts about whether the step will have any impact. Here are several reasons why.