I think you are confusing exchange rate mechanism and domestic economics and their interactions. Deflation does not mean that exchange rate of Japanese yen increases relative to other currencies.

Japan has free floating currency with inflation-targeting framework.

Japan's import-export balance adjusts more or less automatically because the currency floats relative to other currencies. Japan has very little foreign debt, so the huge national debt is not creating inflationary pressure trough exchange rates.

Japanese yen suffering from long period of low inflation and deflation (lost decade) is caused by the lack of structural reforms and demographics. Japan is getting old fast and people are saving for their retirement. Domestic consumption is not taking off

To put things into perspective:

Household consumption makes 61% of the Japanese GDP

Exports of goods and services is just 16.2%

> Deflation does not mean that exchange rate of Japanese yen increases relative to other currencies.

There is evidence that shows over the long run a currency's exchange rate will be favoured against those with a positive inflation rate differential.

Of course it does, but the effect is not linear and its mostly correlation caused by underlying mechanisms.

Too much inflation is usually sign of problems in the economy. Too low inflation is also sign of problems. The optimum rate of inflation is usually somewhere 1-4%.

Strong currency is not good thing in itself. It hurts exports and makes foreign goods cheaper.

Your instincts are not wrong, believe it or not. Unfortunately most economists fall short of the current state of their science. The first thing one needs to understand about economics is how rife it is with special pleading from selfish interests, because the output of economic science is so important to justifying public policy prescriptions. One thing that is constantly ignored is how government fiddling with the interest rate has a way of warping the capital structure into unsustainable configurations. You don't need an economics Nobel Prize to know that when Venezuela puts price controls on food the grocery stores go empty. But there are much more powerful special interests served by price controls on borrowed capital, so a lot of effort goes into willfuly bad "economics" aimed at justifying the practice.

Would you recommend Economyths by David Orrell?

Sounds like a really interesting book! I read the synopsis and the mainstream is sorely in need of a approach that acknowledges the extreme complexity and heterogeneity of an economy. Nothing irks me more than to see Paul Krugman speak of the world as if it can be quantified in a handful of "aggregate" variables and then blame his political enemies any time things don't go according to plan.

There are different effects of the lower oil price on Japan's economy. BoJ staff have weighted them and determined that the net of them will threaten to move inflation growth off target.

How is the growth of inflation threatened? The BoJ thinks business confidence in Japan will drop because of recessions in trading partners.

This is why it is responding with a policy that will hopefully be more aggressive in pursuing higher inflation and GDP to offset the foreign developments.

In BoJ's own words in point two in the press release: http://www.boj.or.jp/en/announcements/release_2016/k160129a....

Stable prices with a gentle growth are better for everyone. It's not important if oil is cheap or expensive in the long run, what matters is that you can make sensible forecasts and do long range planning without having to worry about one of your main inputs wildly fluctuating in price and causing havoc across the board.

No everyone - there's a lot of money to be made from volatile price swings.

Oil is cheap because China is having problems. And they were perhaps selling robots to China.

Yes, cheap commodities should benefit Japan but when they're cheap because demand is weak, Japan suffers from that too.

It can be said the main reason oil is cheap is for political reasons.

Saudi Arabia has saved up a large stash over the past few decades & it would not like its regional power states to be taken away in wake of the removal of Iranian sanctions. At least not for a while.

The Saudi oil ministry intentionally lobbied for increased production as soon as they became aware Iranian oil sanctions could be removed.

If game theory is used to analyse the situation, it serves them best to encourage the oil price to stay low & everyone else is incentivised not to cut production either.

The Japanese economy is dependent on exports of robots to China?

yes, and cars and electronics and everything else china consumes. even 7-11. you ever been to china?

I live in China, and previously in Japan. My point is that the majority of the Japanese economy is not made up of exports to China, which in turn are not in majority made up of robots, as the parent believes.

18% of their export economy is, which is a pretty large amount.

http://atlas.media.mit.edu/en/profile/country/jpn/

ELI5: a reduction in demand from china will have a huge impact on japan. i don't know what other weird yarn about robots you're trying to spin with my words.

You're not the parent; stop commenting.

> Citing "low price of oil" as a reason for economic woes just seems like bad science - I though economists were better than this ?

Yes it is, no they aren't

Especially "specialists" commenting in the press.

The problem with Japan is the complete stagnation of their economy. China makes it cheaper, internal consumption is decreasing.

Trying to "create inflation" is pretty much as effective as trying to defibrilate a dead corpse.

They keep hiking income tax rates before inflation ever materializes, that's a good way to keep deflation going indefinitely.

Cut taxes, especially in the lower brackets, you will find your inflation eventually. Japan just doesn't want to do that.

It's really about demographics. When people borrow money is created. When they stop borrowing money is destroyed as it's paid back, which leads to a deflationary collapse and other debts go bad.

We should have state issued money that tracks wealth created instead of debt that tracks boomer sentiment.

People don't want to use the phrase "worldwide depression", so they call it by another phenomenon that is highly correlated to it: low oil price.

Just substitute them. Economists are not this bad.