Bank of Japan (source: google.com)
HOW DOES JAPAN OVERCOME ITS DEFLATION?
The Bank of Japan (BOJ) revealed a new and aggressive monetary policy to end the draught of 15 years of deflation in the world’s third largest economy. Japan may take a dramatic change in Japanese monetary policy by putting old theories to the test. The Bank of Japan has vowed to double its government bond holdings in two years period. Japan’s citizen has now realised the effort of its central bank to defeat deflation. This policy has been concluded by the central bank after two days of meeting under new Governor Haruhiko Kuroda, with an announcement that it would chase quantitative easing as long as it needed to reach its 2 percent inflation target. Kuroda has vowed to do whatever it takes to achieve the 2 percent inflation target within 2 years. Scepticism rise among economist as to whether the target can be achieved. But Tim Duy reckons that western journalists are missing the real story of the Japanese monetary rethink:
“In my opinion, a higher inflation target by the Bank of Japan is not particularly interesting. After all, the Bank of Japan can't hit the current "goal" of 1 percent inflation. I don't have much faith that renaming the "goal" a "target" and increasing it to 2 percent will be like waving a magic wand. But something much more significant is afoot - the possibility of explicit cooperation, albeit perhaps forced cooperation, between fiscal and monetary authorities. The loss of the Bank of Japan's independence to force the direct monetization of deficit spending is the real story.” - Tim Duy
But Jesper Koll, head of Japanese equity research at JPMorgan Securities, believes it can be;
But Jesper Koll, head of Japanese equity research at JPMorgan Securities, believes it can be;
"You've got credit growth, you've got demand for credit and you will find that within 15 to 18 months, consumer price inflation in Japan will be well in excess of 1 percent," - Jesper Koll
JAPAN RATIFY AN INTERESTING MONETARY EASING BY “REMOVING THEIR SKIRTS”
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JAPAN CUTS INTEREST RATE TO AROUND ZERO
Ways of how Japan reduce its interest rate -;
On the weekend after Haruhiko Kuroda is elected as the new governor of Bank of Japan, he announced a radical monetary easing measures. The newly formed girl band whom consists of a group of university and high school students with the catchy name of “Business streets of Japan” took it to the stage of Tokyo. They promised to remove their skirts if the Nikkei, Japan’s benchmark share index, hit 13,000 after the central bank’s announcement.
(Source: google.com)
Both Nikkei and Business Streets of Japan delivered 
PRIME MINISTER SHINZO ABE TO CONTEST BANK OF JAPAN MONETARY POLICY?
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Prime minister Shinzo Abe returned to power following the election in December and vowed to rise Japanese’s economy and plan to push bolder monetary policy than what BOJ has offered. He unveiled his radical plans in mid-November last year to overhaul the Japanese economy. His plan includes 3 factors which is aggressive monetary policy, fiscal stimulus and structural reform. This plan has helped propel the Nikkei 66 percent higher and weaken the yen against the dollar by around 26 percent.
But the Nikkei saw a sharp correction in recent months which is the fall of 20 percent in the last week of May through to mid-June, amid the tapering panic. It has now recovered roughly 14 percent.
The policies that Shinzo Abe introduced have cost the yen to drop and have given a boost to exports. BOJ may move forward by winning the elections to the upper house of parliament on July 21 but then Abe is expected to gain majority. However, if he fails to get on his feet back, the central bank may take action to reassure markets.
JAPAN CUTS INTEREST RATE TO AROUND ZERO
Japan's central bank cut interest rates to around zero in an effort to inject life into a stumbling economy. Many assumed that when Japan cut its interest rate to around zero, it will boost growth in economic. However this has not offered a miracle cure. Thus, the nine members of BOJ policy board decided to increase the target from zero to 0.1% and this has not changed since December 2008. The decision is influenced by the worries about the Japanese economy, which is being decrepit by a strong yen and persistent deflation. Recent economic indicators point towards deteriorating exports, production and corporate sentiment.
Ways of how Japan reduce its interest rate -;
- Reduced borrowing cost
- Financial socialism
- Helping small businesses
- Home Buyers
But this risk that Japan is taking has not done well but harm because low rates do not boost private demand. Instead it allows for bigger and bigger government role in the economy and low rates encourage financial socialism and crowd out private risk takers and initiative.
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Written by: Izreen Rahiman
