EPGE 1
1. Introduction
This essay will discuss on The Economist (2014). The article spoke about the economic policies Japan implemented, the intention and aftermath of it. It had covered the “three arrows” of which abenomics is based upon, namely fiscal stimulus, monetary easing and structural reforms, of which is executed to encourage private investments. Major points from the article will be explored in greater detail and a better comprehension will be derived on how the Japanese government intends to carry the country out of recession and achieve an objection of 2% core inflation rate of which the Bank of Japan (BOJ) had projected. At the end of this essay, with greater understanding of the purposes and intention of the implemented policies, a conclusion and opinion will be drawn.
2. Monetary easing - Monetary Policy
As cited by the Economist (2014),
“The scale of the central bank’s action – it will print money to buy 80 trillion yen of government bonds a year.”
Monetary easing as highlighted above by the Japanese government would suggest that they had adopted the expansionary monetary policy via the open market operation tool. This is further interpreted by Parkin (2014: 654) denoting that,
“The Federal Reserve’s (Fed’s) attempt to influence the economy by changing the interest rates and the quantity of money is called monetary policy.”
The act of purchasing Japan’s equities on an annual basis is to boost the money supply (MS) in the economy and increase the excess reserves of commercial banks for loans, henceforth addressing the ballooning public debt. Confronted with excess reserves growth, commercial banks would naturally reduce the interest rates for loans. BOJ (2005) states that it promises to sustain a zero rate commitment of which the policy rate will stay at zero until Japan’s economy is out of deflation. This is to encourage borrowing in an attempt to stimulate the economy through expenditure, production and exports.
Diagram 2.1 Japan GDP
This essay will discuss on The Economist (2014). The article spoke about the economic policies Japan implemented, the intention and aftermath of it. It had covered the “three arrows” of which abenomics is based upon, namely fiscal stimulus, monetary easing and structural reforms, of which is executed to encourage private investments. Major points from the article will be explored in greater detail and a better comprehension will be derived on how the Japanese government intends to carry the country out of recession and achieve an objection of 2% core inflation rate of which the Bank of Japan (BOJ) had projected. At the end of this essay, with greater understanding of the purposes and intention of the implemented policies, a conclusion and opinion will be drawn.
2. Monetary easing - Monetary Policy
As cited by the Economist (2014),
“The scale of the central bank’s action – it will print money to buy 80 trillion yen of government bonds a year.”
Monetary easing as highlighted above by the Japanese government would suggest that they had adopted the expansionary monetary policy via the open market operation tool. This is further interpreted by Parkin (2014: 654) denoting that,
“The Federal Reserve’s (Fed’s) attempt to influence the economy by changing the interest rates and the quantity of money is called monetary policy.”
The act of purchasing Japan’s equities on an annual basis is to boost the money supply (MS) in the economy and increase the excess reserves of commercial banks for loans, henceforth addressing the ballooning public debt. Confronted with excess reserves growth, commercial banks would naturally reduce the interest rates for loans. BOJ (2005) states that it promises to sustain a zero rate commitment of which the policy rate will stay at zero until Japan’s economy is out of deflation. This is to encourage borrowing in an attempt to stimulate the economy through expenditure, production and exports.
Diagram 2.1 Japan GDP
References: Japan GDP Growth Rate. (2014). [image] http://www.tradingeconomics.com/japan/gdp-growth [Accessed 26 Dec. 2014]. Japan Unemployment Rate. (2014). [image] http://www.tradingeconomics.com/japan/unemployment-rate [Accessed 26 Dec. 2014]. Jiji, (2014). U.S. Treasury to Japan: Refire ‘three arrows’- including structural reform The Japan Times. [online] The Japan Times. Kihara, L. and White, S. (2014). Japan’s Unemployment Rate Hits A 16-Year Low. [online] Business Insider. http://www.businessinsider.com/japans-unemployment-rate-hits-a-16-year-low-2014-6?IR=T& [Accessed 26 Dec. 2014] Manthorpe, J Parkin, M. (2014). Economics. 11th edition. United States: Pearson Education Riding to the rescue Sharp, A. and Masaaki, I. (2014). Japan Real Wages Fall to Global Recession Low in Abe Risk (2). [online] Businessweek.com. http://www.businessweek.com/news/2014-02-05/japan-real-wages-fall-to-global-recession-low-in-spending-risk [Accessed 26 Dec. 2014].