Japan Economy

Japan’s New Monetary Regime

The past years Japan has suffered from a very tough financial crisis. Attempts of introducing quantitative easing as a method to end deflation haven’t proved successful. Japan has now adopted a new approach called “unlimited easing” to at least reach a two per cent inflation. Mr. Kuroda, BOJ governor, along with Prime Minister Abe, is trying to implement different methods to end deflation and boost Japan’s economy. First, Japan needs to stabilize the exchange rate so deflationary expectations will cease and firms will start investing because of positive expectations of future profits. In order to achieve this, Prime Minister Abe announced that a new $226.5 billion package should boost the economy. Japan has previously used this method but it was unsuccessful. Mr. Abe claims pasts stimulus packages were not aggressive enough to help the economy. Because we all know that in order to get money for this additional spending it will have to be borrowed, which in turn will further increase debt owed, they plan to borrow this money from itself. This means that Japan is taking a similar approach to that of Europeans and Americans. Borrowing from the Bank of Japan means another round of money printing. The decision of stabilizing the yen and implementing structural reforms may avoid a further economic downturn. Deregulation can also help in order to encourage domestic competition in service industries.

Japan’s government did action to raise Japan’s economy. The one of the action is ‘Quantitative Easing’ (we call QE). The purpose of QE is that to maximize market flexibility and to down long-term interest rate for leading investments by companies and growing employ rate and finally growing market environment. However this QE also has positive effect and negative effect simultaneously. First, the positive effect is that market interest rate can be fallen down. And it also can solve the market instability. Finally, they can have advantage from the competitive devaluation of currencies, which is competence of export. It can rise up export quantity of Japan’s companies and it is strongly related to rise up current balance of Japan. However, its negative effect also can’t ignore. Even though QE policy makes Japan market raise up, it affects negative many effects to other countries such as Korea, China, U.S and Taiwan etc. Finally, it causes ‘War of the exchange rate’

Mrs. Kuroda and Mrs. Iwata are trying to fix the yen rate to the dollar and with that they can finally stop deflation without getting new currency. This suggests the most important factor in ending deflation is confidence in the future, but Japan its trying to bolster this confidence withs the use of this reforms and this will create a confidence between the firms to invest on the expectation of future profits

This monetary and fiscal stimulus will provide stability to the

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