"Structural Deflation, Dormant Capital, and the Hidden Architecture of Japan's Fiscal and Taxation System"

This paper investigates the structural causes of Japan’s prolonged deflation, the role of dormant capital within the financial system, and the true function of the consumption tax as a mechanism of economic control. With over ¥870 trillion in government bonds and current account deposits effectively removed from circulation, Japan’s economy faces a liquidity trap disguised as financial stability. The analysis reveals that the consumption tax operates not merely as a revenue source, but as a suppressive device to prevent excessive purchasing, speculation, and supply chain disruption. However, any attempt to reduce or abolish the tax risks triggering speculative investment in essential goods and a capital shift away from government bonds—potentially destabilizing the bond market and monetary credibility. The study emphasizes that these risks are rooted in Japan’s declining self-sufficiency in food, energy, and manufacturing. Without restoring domestic supply capacity, tax and monetary reforms remain superficial and fragile. The paper concludes that true reform requires structural reactivation of real economic circulation, not reliance on controlled stagnation. Author Tetsuo Konno(今野哲夫)https://orcid.org/0009-0002-1842-7865