Money and Metals

This Business Week article examines deflation in Japan. " A decade of deflation has helped reduce Japan's notoriously high prices, everything from clothing and telephone bills to beer and real estate has gotten at least somewhat cheaper. But those falling prices have also contributed to the economy's lengthy slump, locking it into a downward spiral that is difficult to stop."

"Higher prices will force Japan's central bank to walk a fine line. Moving too soon to tighten money supply or raise interest rates may not only hobble the world's second-largest economy but contribute to a global slump amid high oil prices and worries about 'stagflation' in the United States."

"'The U.S. appears to be slowing, and Europe remains the laggard. If Japan's economic recovery retrenches because of a policy mistake by the Bank of Japan, we really are left with no major driver of global growth,' said Glenn B. Maguire."

"Bank Governor Toshihiko Fukui kicked off Thursday's meeting saying that the BOJ would stick to its ultra-loose monetary policy, with interest rates virtually at zero, until deflation is dead. But he also predicted prices would level out and possibly begin rising within the next couple months."

"The International Monetary Fund is among voices urging the BOJ to go slow. The risk of slipping back into deflation may still outweigh the perils of rising prices, David Burton, director for the IMF's Asia and Pacific Department. 'The BOJ is right to be cautious,' he said."