New Pressures For Deflation-Weary Japan

By Bill Visnic August 23, 2010

Bending under the sustained pressure of a years-long deflationary economic environment, the current situation in Japan may be a cautionary one for those not convinced the potential onset of deflation should be a concern for the United States.

Toyota restart of construction of assembly plant in Blue Springs, MS.jpgThe New York Times reports today that anxiety is mounting in Japan for action after recent economic measures showed the nation's economy, long the world's second-largest, has been surpassed by China. Meanwhile, for this export-dependent nation, the burgeoning value of the yen (now at around 85 to the dollar) has combined with a new dip in the Nikkei stock index - to its lowest this year - to hike concern that Japan's economy can't break free of its deflationary downspin.

Economists and policy experts in the U.S. aren't in a panic about deflation, but some now are wondering if Japan's near decade of deflation-fighting doesn't now warrant closer examination for lessons American policy-makers might take to heart.

"Japan's experience shows that deflation can creep up on an economy -- and can be extremely difficult to shake," the NYT article said.

The situation may increasingly shape how Japan's automakers deal with the burden.

Toyota Motor Corp. - the No. 1 exporter of vehicles to the U.S. - recently said the rising yen has made it too expensive to export both the Yaris subcompact and the Corolla to the U.S. The company is trying to decide whether it can build the Yaris in America and make a profit on the car, which starts at about $12,600.

Toyota Corolla 2010 profile on the road.jpgAs for the volume-selling Corolla, when Toyota decided to pull out of its joint-venture assembly plant in Frement, CA, when partner General Motors Co. announced its intention to vacate, it left Toyota without U.S.-based assembly for the Corolla. Toyota said in June it plans to begin building the Corolla in a greenfield plant in Blue Spring, MS, that originally had been earmarked to build the Prius hybrid-electric vehicle. Construction at the Mississippi plant near Tupelo was suspended in late 2008 when the U.S.'s economic recession began.

Toyota also builds the Corolla in Cambridge, Ont., Canada.


Photos by Toyota

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