Stagflation:- It's a phase an economy faces; When slow economic growth coincides with rising unemployment and high inflation.

 

Japan's 3rd biggest Economy in the world with a GDP of around $ 5 trillion is showering around Stagflation because of rising commodity prices and an increase in unemployment rates due to Covid-19. 

The weakening of the yen in the global market, rise in oil and import prices has pushed Japan towards a situation of Stagflation.

 

Japanese stagfaltion wholesale Inflation hits a four-decade high this year. The rising costs are disturbing for the businesses which results in low manpower demand and disruptions of supply chains, rising oil prices in the global market act as a catalyst to push Japan towards stagflation.

 

Japan is facing a situation of Stagflation because of multiple factors like:-

1) Rising commodity prices 

2) Rising oil prices 

3) Cheapening of Yen in the global market which triggered rising import prices

4) Disruptions of supply chains due to Covid-19

5) weak policy making 

6) A hawkish stance towards a monetary policy which is more or less correct as Japan was facing deflation in the recent past.

 

The policymaker's approach towards deflation in Japan in the recent past is traditional and timid as well. They thought it might be a cyclical slowdown and the traditional monetary policy approach by increasing liquidity and widening the balance sheet of the Bank of Japan would answer the cause. But, unfortunately, this is not the case. The slowdown and deflation in Japan is a structural slowdown and needs some strategic steps to answer the cause. A targeted approach is required by the Bank of Japan while adding liquidity to the economy towards more growth sectors.