In recent weeks we discussed how countries try to control monetary movements from central bank policy. In this case Japan has decided to increase circulated currency by a staggering 50%. In doing so they wish to increase inflation by 2% and spur a new wave of intense economic growth ah defined in the article Japans initiates bold bid. This is surprising as Japan is seen as a very conservative country when it comes to fiscal policy and this is essentially a large gamble. The hope of the Prime Minister and his new finance minister is that spiraling deflation has lead to stagnation in growth and that increased inflation will spur bigger prices and profits. Critics envision that once the prices start going up,after this massive kick start ,they will keep rising till inflation is uncontrollable and this will lead to another financial crisis.Kuroda is not oblivious to the risks associated “ We will keep in mind those risks, but push ahead”
The results seen just yesterday (4th April) are quiet substantial. The Nikkei reaches highest level since 2008 reports that the Nikkei has reached its highest level since prior to the 2008 financial crisis and the Yen has been sinking during the past two years , even more so this year . The market boost combined with currency weakening is setting the stage for Japan to reap the benefits of a government lead kick-start.This sharp increase,just this week,can largely be attributed to the perception that the actions by the central bank of Japan.
By his own admission the new finance minister understands the risks involved but in the article beware of monetary experimentation– Martin Taylor goes further to say that Japan and other countries bold policy choices are not only risky but similar to clinical trials,as a humorous take on ill patients being likened to countries with 'sick' economies.This is both entertaining and a somewhat educational analogy.
As Japan pushes ahead with its bold new economic plan, one can at least credit them with a course of action that escapes the status quo of stagflation and allows them to gamble on a big win.
Japan has really been struggling the last few years to maintain any sort of order in its economy. To me, it is interesting that the timing of this announcement falls after the most recent round of elections rather than before it. Without knowing too much about how the Japanese central bank works, I would have expected that they announce such a drastic policy more in line with the election cycle. Hopefully inflating the economy and making money circulate more will boost the economy. The yen will probably depreciate against other currencies which will make their exports much more attractive to world wide consumers. Perhaps we will see a new round of cheap electronic goods soon.
ReplyDeleteAn increase in currency by 50 percent seems like quite a jump. Inflation surely will occur with a fifty percent increase, as the article stated. My first reaction was, why would japan want to do this? However, I can see the reasons Japan is doing this. To beat deflation would be at the top of the list. Mr. Kuroda seems very serious about this. Also, I do find it interesting that stocks have soared in anticipation of this inflation. I can see the reasons why Japan is doing this. I am though still conflicted rather this "experimentation" is worth the risk! It will be interesting to watch and see if this risk is worth it!
ReplyDeleteBy increasing Japanese currency by 50%, the Japanese government may weaken investor confidence in regards to the Yen. Personally I am In agreement with Caroline D in regards to the rise of inflation will match the increase supply of currency. The deflationary cycle and stagnation that Japan would experience would continue to worsen the Japanese economy. The actions of the prime minister and the finance minister are extremely accurate in recognizing the potential problem that a drastic increase of inflation will weaken the Japanese economy. Once an inflationary cycle is started economic peril is likely some to follow. Hence any actions taken in order to avoid such inflation should be undertaken.
ReplyDeleteI would have to disagree with the skepticism because expensive currencies are hard on economies and the Yen has been far too expensive in recent years. Yes it is a bold move, however, Japan needs to be competitive and be able to export more. In addition a cheaper currency can spur more tourism. Inflation hasnt happened yet, there is always a trade off and a balance to be struck. as this article states: http://rt.com/business/bank-japan-yen-deflation-331/, Japan needs to first fix the problem of deflation before they begin to worry about inflation.
ReplyDeleteDepreciating the yen is a good idea as it will spur domestic inflation and foreign investment as foreign investors snap up cheaper Japanese assets. However, this move does appear to be a bit drastic. Perhaps a more gradual approach would be better. I think this extreme move just speaks to the dire situation the Japanese economy is currently facing. Perhaps the earthquake and tsunami delivered the final 1-2 punch! It looks like the Japanese need capital and they need it now! The entire nation is on a deep discount sale! The Japanese are telling the world to come and get it!
ReplyDeleteSome economists worry that the current market will likely force the Japanese yen’s depreciation and this may upset Taiwan’s export-driven recovery. Taiwan's local currency remains undervalued against the yen and the US dollar. The local currency has the bias to appreciate going forward, given encouraging economic data and progress in cross-strait economic cooperation, notably the commencement of offshore yuan business, according to the Economist. Taiwan can benefit from a weak yen, because Japan is a major supplier of raw materials and capital goods, including chemicals and machinery.Furthermore, Japan accounts for about 20 percent of Taiwan’s annual imports.
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