Too early for Japan to advise China on defeating deflation

TOKYO – Pot. Kettle. Black. This proverbial idiom surely leapt to People’s Bank of China Governor Pan Gongsheng’s mind when Japan’s former central bank head offered Beijing advice on battling deflation.

On Friday (September 6), Haruhiko Kuroda, who headed the BOJ from 2013 to 2023, appeared at the Shanghai’s Bund Summit full of pointers for PBOC officials. Kuroda warned them to act urgently and boldly to avoid “Japanification” risks. “Central banks should avoid prolonged deflation even if it is mild, that could affect wage determination,” he said.

This was three days before today’s news that mainland consumer prices rose less than many economists expected in August. The 0.6% increase from a year earlier comes amid factory-gate deflation, a trend that’s plagued the PBOC and Chinese economy since 2022. In July, producer prices fell 1.8% from a year earlier following a 0.8% decline in June.

Kurida’s advice comes from a policymaker who arguably understands the contours and challenges of deflation better than anyone. Yet irony abounds considering how Kuroda left BOJ headquarters in April 2023 without finishing the job himself.

Since then, it’s fallen to his successor, Kazuo Ueda, to sort out where Japan finds itself 25 years on. On July 31, Ueda’s team hiked Japanese rates to 0.25%, the highest since 2008, signaling that deflation had been defeated. Yet, a tantalizing thing happened in the weeks since then: Tokyo officialdom pushed back to say not so fast.

On August 23, Ueda was summoned to parliament to face a grilling from worried lawmakers. The BOJ’s tightening step 23 days earlier sent the yen skyrocketing, a shock that wiped out as much as $6.4 trillion from global stock markets. Yet another big surprise came at the same