http://online.wsj.com/article/SB10001424052702304811304577368901431588644.html
The Bank of Japan announced that it will increase its purchases of government bonds to help prevent deflation. The bank bought an addition ¥10 trillion in assets to their already ¥5 trillion. Along with this they decided to make many other changes including reducing their six-month fixed-rate loan provisions by ¥5 trillion. They hope that a combination of all of this will help to restore Japan's economy and experience sustainable growth. However, Japan's finance minister said more will need to be done to stop deflation so it will be interesting to see what the else the BOJ decides to do.
3 comments:
Anyway to fuel consumption, which could be from lowering interest rates (monetary policy) or cutting taxes (fiscal policy), could potentially prevent deflation. The main goal in lowering deflation is boosting the economy. By the Bank of Japan lowering interest rates, this would encourage more spending in the economy, which would decrease deflation from occurring. However, they can’t let interest rates fall to zero, like they have before, because the banks become powerless to provide any further stimulus to the economy. A more ideal solution for the Bank of Japan may be a mixture between both monetary and fiscal policies, which wouldn’t push deficit spending too far, while still having monetary support.
The policies stated in the article should work for the deflation. However, the government of Japan might want to be cautious on its move, in case to have a debt problem in the future. I agree that to promote consumption and reduce taxes burden will stimulate the economy and therefore pull the economy back from a situation that is threatened by deflation. Instead of only depending on one side, a combination of monetary and fiscal policy could be considered as a potential solution that will better solve the problem.
This is not a surpring news concerning the situation in Japan. In order to avoid deflation, creat consumption, this monetary policy has been used not the first time for BOJ. The domestic market in Japan is still recovering and relatively small even when it at its top. International market should be taken more serious to boost Japan's economy.
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