The lesson from Japan is that, if there is the slightest risk of deflation, monetary policy needs to be looser than warranted by current economic conditions.
Most serious of all, deflation can make monetary policy ineffective: nominal interest rates cannot be negative, so real rates can get stuck too high.
Once deflation sets in, monetary policy can do little to revive an economy.
For once deflation has taken hold, monetary policy becomes a blunt tool.
In contrast, once expectations begin to shift away from continuing yen appreciation and deflation, managing domestic Japanese monetary policy in the transition will be technically intricate.
Another gold member, James Dines, editor of the Dines Letter, says that the Fed's fear of deflation has prompted a highly stimulative monetary policy.
Expectations that Mr. Abe's Liberal Democratic Party, which came to power in December, would implement an aggressive monetary policy to end 15 years of deflation sent the currency tumbling.
Expectations that Mr. Abe's Liberal Democratic Party, which came to power in December, would implement an aggressive monetary policy to end 15 years of deflation sent the currency tumbling, a boon for exporters that had been struggling with a strong yen.
The Fed is conducting monetary policy to counter high unemployment and possible deflation.
No such edifying gauntlet faced the government officials and politicians who brought down 70 telecom companies through a series of egregious policy errors of telecom reregulation and monetary deflation.
That is because much looser monetary policy is necessary to stave off recession and deflation in the euro zone.
But Japan must also act "to finally break free of the deflation trap" and it needed to "rely more on monetary policy to kick-start growth".
Our deflation began in the late 1990s, when the Fed inadvertently tightened monetary policy.
The second and no doubt leading contributor to the gold bubble has been the world financial crisis of 2008-2009 and the subsequent worldwide central bank policy of monetary expansion to fight financial asset price deflation.
The yen's slump across a range of currencies has occurred as a new government has pledged to revive the deflation-dogged Japanese economy and has pressured the Bank of Japan to aggressively ease monetary policy.
WSJ: Strong Start to 2013 Hints at Revival for Currency Funds
Deflation is not inherently bad, and that it is therefore far from being obvious that a wise monetary policy should seek to prevent it, or dampen its effects, at any price.
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