Interesting. Im sure there are potentially many reasons why Japan has failed to create inflation despite decades of QE. I assume the main reasons are an ageing population and / also a population of savers.
Or does it just say that QE does not work and that the deflation 'problem' is actually structural?
The best explanation comes from Richard Koo, chief Economist of Nomura and famous for his theory on "Balance Sheet Recession"
"During a usual monetary policy-driven market, money created by an accommodative central bank typically spreads throughout the economy and lifts markets. During a balance sheet recession, however, the private sector is a net saver, which means only the financial sector is flooded with funds that are generated by private sector saving and deleveraging"
Basically QE doesn't make inflation because the private sector is deleveraging so even though there is cheap money there are no borrowers
Read more: http://www.businessinsider.com/richard-koo-on-bubbles-in-a-balance-sheet-recession-2013-11#ixzz33ixdIvlh
Here's him giving a presentation on this idea. Worth a watch if you are interested in economics.
https://www.youtube.com/watch?v=rMGUveWr7Fg
Exactly, even though the supply is abundant, it's not moving anywhere.
It (increased money supply) may eventually lead to inflation but Japan is a real world example of a ballooning balance sheet with minimal inflation. The US will likely follow a similar path.
