Review of Monetary Policy from a Broad Perspective

The Bank of Japan (BOJ) released its analysis on economic activity, prices, financial conditions and monetary policy over the past 25 years. The document titled “Review of Monetary Policy from a Broad Perspective” concluded that the Bank’s large-scale monetary easing since 2013 was not effective as expected at the time when it had been introduced. Although the policy was considered as one of three pillars of economic policies taken by Prime Minister Shinzo Abe, the review did not applaud Abenomics.

The review admitted that Japanese economy fell into deflation in the latter half of 1990s, in which commodity price consecutively declined. Except some temporary periods of price hike, the tendency of deflation in slow pace lasted until early 2010s. There were three major reasons for it, according to the assessment of BOJ.

 

Firstly, the Japanese economy faced a chronic shortage of demand, because conventional monetary policy measures were unable to sufficiently stimulate the economy due to the effective lower bound on nominal short-term interest rates. Secondly, competition with importing goods from emerging economies based on globalization and technological innovations worked for decline of the prices. And lastly, prolonged moderate deflation brought behavior and mindset based on the assumption that wages and prices would not increase easily.

 

In 2013, the BOJ set a price stability target of 2 percent in January and introduced quantitative and qualitative monetary easing in April. It took a policy for further monetary easing with negative interest rate in January 2016, and went forward to yield curb control in September of the same year. Those consecutive developments were called different-dimensioned monetary policy of BOJ, conducted by the Governor Haruhiko Kuroda.

 

The bank assumed that their monetary easing policy would bring higher inflation by influencing expectations and reduction of nominal interest rates by large-scale purchase of Japanese government bonds (JGB). However, it was not easy to change the behavior and mindset. “Influencing expectations alone was not sufficiently effective to anchor inflation at 2 percent,” said the review.

 

The bank assessed that the large-scale monetary easing policy since 2013 did not have as large in upward effect on prices as originally expected. It thinks that the effects of those unconventional monetary policy measures are uncertain and cannot substitute for conventional ones represented by guiding short-term interest rates. “It is desirable,” the review advises, “to conduct monetary policy so that the zero lower bound would not be reached.”

 

Abenomics assumed that low interest rate would contribute to the exporters in Japan with depreciation of Japanese yen. However, that economic policy did not bring real wage hike. The BOJ warned side effects of an ambitious monetary policy with extremely low interest rate. As getting back to conventional monetary policy under the Governor Kazuo Ueda, it is possible that the bank is looking for a cause for adjusting its monetary policy by publishing its review for this quarter century.

Comments

Post a Comment

Popular posts from this blog

Amendment of Local Autonomy Law

The House of Representatives started discussion on revision of the Local Autonomy Law, which would vest the national government a power to instruct local government in an emergency. It may change the relationship between the national and local government, which has been recognized as equal. The opposition parties oppose the amendment, arguing that it would give the national government an excessive power.   With the Meiji Restoration, the national government abolished the feudal system, introducing modern governance. However, its autonomy was not sufficient. The governor of each prefecture was appointed by the national government. The local governments subordinated to the national government. It was as late as 2000 when  the Comprehensive Decentralization Law  was enacted and the relationship between the national and local government was defined as equal.   The national government found inconvenience in the relationship between the national and local government, when ...
Read more

Request for Final Nuclear Disposal Site

Ministry of Economy, Trade and Industry requested Genkai Town, Saga, to accept “literature survey” for building a final disposal site for high-level radioactive waste. Genkai is going to answer within this month. If it accepts, it will be the third place to accept that survey, following two places in Hokkaido. Main reason to accept the survey is supposed to be subsidy from the national government.   Japan has no final disposal site. Among all 54 reactors in 17 nuclear power generation plant, 12 reactors of 6 plants are operating. The rest of them are not in operation, some of which are determined to be decommissioned. Used nuclear fuels are stocked in each plant, 　 or have sent to a reprocessing plant in Rokkasho, Aomori. There are two plans to stock nuclear wastes in the intermediate facility for disposal, one is already built and another is still in negotiation.   Nuclear Fuel Final Disposal Act in 2000 determines to bury nuclear waste in the underground. Literature survey, ...
Read more

Not A Royal Wedding

The bride called her husband an indispensable existence and their marriage was necessary choice to protect their mind. The groom insisted on his life as only once and his right to be with his loved one. Her father wanted his daughter’s marriage to be celebrated by the people. The people were not sure whether the family was happy as a whole. Is this the traditional Japanese social system that makes no one happy? Mako Komuro, as known as Princess Mako during her life in one of the royal family Akishino, held on Tuesday a press conference with her husband Kei Komuro, right after submitting marriage report to local government. It was something different from ordinary Q&A session, because Mako was afraid of her mental uneasiness brought by some questions not based on truth. So, the event was actually one-sided speech to the reporters. Mako emphasized that the Kei’s decision of studying abroad five years ago had not been his original idea, but a result of her request to establish an over...
Read more