Monetary Policy in the Japanese Economy Incorporating Energy Prices

Naoyuki Yoshino () and Farhad Taghizadeh-Hesary ()

Chapter Chapter 6 in Monetary Policy and the Oil Market, 2016, pp 93-106 from Springer

Abstract: Abstract Japan has reached the limits of conventional macroeconomic policies. Recently, the Bank of Japan, in order to overcome the deflation and achieve sustainable economic growth, set the inflation target at 2 % and implemented aggressive monetary policy to achieve this target as soon as possible. Although prices started to rise after the Bank of Japan implemented monetary easing, the main reason for this price elevation may not come directly from easy monetary policy, but other sources such as higher oil prices. High oil prices in yen, which is the result of a depreciated yen, is one of the main causes of the inflation. Moreover, this chapter shows that quantitative easing may not stimulate the Japanese economy. Aggregate demand that includes private investment did not increase significantly in Japan when the interest rate was lowered. Private investment displays this unconventional behavior because of uncertainty about the future and the aging population. We believe that the remedy for the Japanese economy is not monetary policy. The government needs to look for serious structural changes and growth strategies.

Keywords: Easing monetary policy; Japanese economy; Zero interest rate policy; Abenomics; Energy prices (search for similar items in EconPapers)
JEL-codes: E47 E52 Q41 Q43 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/978-4-431-55797-5_6

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