The topic of this dissertation is to discuss the monetary policy adopted in bubble economy period of Japanese. As Japanese economics is a specific example around the world. The Japanese government adopted many effective ways to revitalize the economy with the result that its economy rose abruptly after the World war II. However, because Japan entered a liquidity trap around 1990s, and experienced a “Lost Decade” (Hiyashi and Prescott, 2002), the government experienced many economic problems such as of slow growth, deflation, and continues nethermore output (Daniel, 2009) In this dissertation, the following parts will be given: Literature review, data description, test result discussion and conclusion.
Briefly speaking, the literature
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Finally, a conclusion will be provided at the end of this section. At the end of this dissertation, there is a final conclusion will be given, the conclusion will cover the reason whether the monetary policy adopted by Bank of Japan was wrong. It will also give some suggestions about the monetary policy according to Japan’s economy.
In general, the point of this dissertation is to focus on the monetary policy of Japan during bubble economy period and to identify whether Bank of Japan did right or wrong in such period.
Literature Review
The background of Japanese Monetary policy in Bubble economy period
As Walsh (2003) said that, ‘a social loss function dependent on inflation and output gap is the appropriate objective of monetary policy’ which indicates that the level of inflation and output are the major factors that affect monetary policy of all countries. Moreover, Castelnuovo and Surico (2010) claimed that inflation are the key elements to decided a monetary policy for a county. For the Japan economy, it experienced a disaster during the period 1986-1991, which named Japanese asset price bubble (Wood, Christopher, 2005). It leaded a long term economic depression japan after that. The main reason for the bubble economy is the extremely high inflation rate and output. As mentioned before, Japan was sustained a rapid development after world war II, the main industry of Japan is manufacturing industry. After the Plaza Accord
In the 1900s, Japan faced a lot of economic obstacles. Due to its location on four moving tectonic plates, Japan experiences earthquakes more often than most other countries, Banks, at the time, struggled to keep economic activity stable after earthquakes and even attempted to regulate the flow by granting companies the ability to sell their products without having a drastic change in price. Following the discussion of earthquake bills and such, news was brought to the attention of the Japanese government that a bank in Tokyo had finally gone bankrupt. This sent many into a frenzy trying to get a hold of their money from banks, and in turn, many banks closed. However, this Japanese bank was indeed, not bankrupt, it was only struggling,
A world-class manufacturing power was lead into a deep slump. Japan has traditionally possessed a remarkably high savings rate and a moderately low consumption rate. Throughout the previous two decades of recovery and high-speed growth, this ‘savings surplus’ provided greatly needed capital to private industry in the form of bank loans. This money was used to build and expand Japan’s industrial infrastructure power. However, during the 1990’s the ‘savings surplus’, once the essential fuel for high-speed development became a stern obstruction, leading to a severe collapse in demand and causing a heavy drag on Japan’s economic recovery.
Today in Japan, a reinvention is necessary. There are many struggles with the young generation, the old generation, and catastrophic events which should be addressed. Specifically, the Japanese economy has been experiencing deflation for the past twenty years. In an article, the results of the deflation were described. The authors said, “Because of fewer available jobs and lower
During the decade of the 1960s, the monetary value of exports grew at an average annual rate faster than the average rate of all noncommunist countries. This rapid productivity growth in manufacturing industries made Japanese products more competitive in world markets. With the fixed exchange rate for yen during the decade of 1960, the chronic deficits that the nation faced in the 1950s had disappeared by the middle of the 1970s.
Monetary policy plays a vital role in the housing market developments since housing is one of the more sensitive sectors. Housing demand is determined through the level of interest rates and other economic factors. One of the factors that could have contributed to the housing market development is the low level of nominal funds rate. This paper assessed how much the monetary policy contributed to the housing boom based on several perspectives.
Currently, Japan uses its high technological products to sustain the economy in exchange for raw materials. Due to the rugged terrain of the island of Japan, it is difficult to self-sustain with raw materials such as petroleum. Years ago, Japan was producing raw materials from the volcanic stone, such as copper, silver and gold, until trades were banned (Ew World Economy Team, 2013). Japan has the third largest automobile manufacturer in the word. Industrialization and services is the highest producing income for the Japanese economy. Financial services account for the bulk of Japan’s economy. Tokyo has the fourth largest stock market in the world, and Japan is the largest creditor nation in the world. The country has rebounded from a recession much like the United States. After World War II, it took Japan nearly two decades for it to recover. After one recession, Japan suffered another in the 1990’s and by the early 2000’s began to see signs of sustained recovery (Ew World Economy Team, 2013). There has been slow progress, but the Japanese are using their resources and services wisely to continue to have economic growth and maintain the low unemployment rates (Ew World Economy Team, 2013). Much like the United States, there was an economic catastrophe, but using resources wisely has led to the success of the
This paper will discuss the goal of monetary policy and its impact on the performance of the economy as it relates to such factors as inflation, financial yield, and business. Monetary policy affects all kinds of monetary and financial decisions individuals make in this nation, whether to get a loan to purchase another house or car or to start up a company, whether to expand a business and whether to place savings in a bank, in bonds, or in the stock market. Furthermore, because the U.S. is the largest economy in the world, its monetary policy also has significant monetary and financial effects on other countries.
This Case study provides an insight to the fluctuations experienced in the currency of Japan, Yen from the late 1990’s to recent years. Japan follows the floating currency monetary policy due to which there is no measures taken on to control the fluctuations. Japan experienced magnificent growth through the 60's, 70's, and 80's leading into the 90's beginning. In the late 1990's, Japan’s economy marked its growth significantly slower, which had then come to be known as the 'lost decade' due to Japanese Asset Price bubble that collapsed. Eventually the nation faced major issues regarding
Japan saw its nation change in 1990 when the Japanese economy stagnated. Indeed, between 1991 and 2003 the Japanese economy only grew 1.14% (of GDP) every year. This is not enough when compared to other developed countries. (Yuji Horioka, 2006). Alexander, A. J. (2000) states the facts that from the first quarter of 1990 to the first quarter of 2000 the annual increase in real gross domestic product per capita barely exceeded 1 percent, making it very clear that Japan was in a recession. This is all the
For a prolonged period of time, the Bank of Japan (BofJ) has implemented expansionary monetary policy tools in order to achieve price stability and economic growth. The inflation rate (CPI) target for the BofJ is currently 2%. The success of their monetary stimulus program has often been subject to the mercy of external market forces. The central bank has recently blamed Brexit for the failure of its monetary stimulus program, and extended economic ramifications. The banks quantitative easing (QE) & negative interest rates have failed to save the Japanese economy from stagnation. Global market uncertainty in light of Brexit instigated a rally for the Japanese Yen on the FOREX, leading to an appreciation of the Yen and the subsequent failure of the BofJ’s monetary stimulus. This report will identify the banks use of monetary policy before and after the Brexit vote. It was also try to establish whether market uncertainties caused by Brexit are solely to blame for the failure of the BofJ’s monetary stimulus program. Finally the report will assess whether other variables such as, low oil prices and a slowdown in emerging economies were to blame for the failure of the monetary stimulus package.
Economists and historians have studied the causes for Japan’s stagnation over the past twenty years, but there are significantly different opinions regarding the issue. Most agree that the huge asset ‘bubble’ was the cause for the initial stagnation, but they disagree as to the reasons for why this
The Japanese banking industry has recovered well from the 2009 crisis to consistently post moderate growth. This trend is forecast to continue through to 2017. Japan is the second largest banking industry in Asia - Pacific, accounting for over 26% of the region’s total assets. The Japanese banking industry had total assets of $11,065.8bn in 2012, representing a compound annual growth rate (CAGR) of 2.1% between 2008 and 2012. (MarketLine, 2013)
As a result, Japan went into a prolonged period of deflation that lasted for most of the 1990’s. In order to boost demand, the Japanese government took a Keynesian approach and went through 10 fiscal stimulus packages in 1990’s totaling over 100 trillion yen (10). However, this didn’t have the desired effect on demand because of deflation. Consumers were putting-off purchase decisions because prices were falling. The real GDP stagnated and average growth between 1990 and 2001 was only 0.37% (12).
Technological advances in computers during 1980 increased standards of leaving worldwide. Also, deflation can increase international competitiveness and improves the balance of payments if other countries have inflation. “During Japan’s deflation, the country saw strong exports which, helped offset the fall in consumer spending” (Problems of Deflation, Economics
This paper looks at the evolution of monetary policy in the Philippines by studying monetary aggregate targeting and inflation targeting. Moreover, this paper also present data of some economic indicators that may be affected by the monetary policy. The researcher also analyzes these data.