Japan Monetary policy

Japanese monetary policy might be overly aggressive

Last week, Japanese central bank surprised the world by its proposed ultra easy monetary policy. Basically the central bank shall double the holdings of government bonds and double the amount of the Yen circulation in its economy. The scale of monetary easing is quite comparable to what has been done by the U. S. Fed since 2008.

I think it is appropriate to change the inflation target to 2% from 1% to spur growth in the economy which has suffered deflation and little growth for over twenty years. The U. S. Fed accommodative monetary policy is for the most part, to fight the deflation due to severe recession and for repairing the severely impaired mortgage and bond market then. Similar necessity does not apply to Japan.

Japanese consumers are not short of savings. The households in Japan are sitting on $8.9T held in cash and bank deposits. That is four times of households’ held in the U. S. on average basis. I think the consumers in Japan just need a little bit push – inflation pressure to spend more.

The immediate impact of the ultra easy policy in Japan will be pushing higher its stock market and late push money out to oversee to seek higher return. That will benefit China and U. S. in the sense of funding. However it is not certain if such aggressive policy would be the best to repair its real economy.

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