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Lessons from Japan: High-income Japan’s Suga inherits an economy Post-Covid economic bounce fails Six Abenomics lessons for a world
countries have common problems stabilised by Abenomics to take off in Japan struggling with ‘Japanification’

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BoJ launches policy review after Covid dashes

inflation hopes
Japan’s central bank extends pandemic loan schemes by 6 months to September 2021

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Japan’s headline consumer price index was down 0.9% in November compared with a year ago © Reuters

Robin Harding in Tokyo DECEMBER 18 2020

9

The Bank of Japan has launched an overall review of its monetary policy for the
first time since 2016 after the Covid-19 shock crushed hopes of achieving its 2
per cent inflation target.

Expected to report in March 2021, the review will consider the potential for
“further effective and sustainable monetary easing”, beyond the large-scale
asset purchases and negative interest rates used since 2013 and 2016,
respectively.

The decision to launch a review highlights the depth of the central bank’s
concern over this year’s slide back towards deflation and its inability to achieve
its mandated price stability goals.

The BoJ did not signal whether it hoped to ease policy further or simply sustain
its current trajectory for the long term. It said there would be no change to
“yield curve control”, under which it purchases government bonds as needed to
keep 10-year yields around zero per cent.

“Given that economic activity and prices are projected to remain under
downward pressure for a prolonged period due to the impact of Covid-19, the
Bank will conduct an assessment . . . with a view to supporting the economy
and thereby achieving the price stability target of 2 per cent,” the central bank
said.

The launch of the review came as the BoJ said it would extend its special
coronavirus loan programmes by another six months to September 2021 and
adjust the terms to make them more flexible.

Its programme to buy an additional ¥15tn ($145bn) in corporate bonds and

commercial paper, which was split 50:50 between the two asset classes, will
now be allocated flexibly according to market conditions.

Recommended The BoJ will also extend its offer of cheap

loans to help banks finance small and
midsized companies through the
pandemic, removing an upper limit of
¥100bn per institution to encourage take-
up of the scheme.

Lessons from Japan Overnight, interest rates stayed on hold at

Zero interest rates: what UK investors can learn
from Japan negative 0.1 per cent. The BoJ’s targets for
purchases of real estate and equity funds Follow the topics in this article
were also unchanged.
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The central bank’s policy meeting came the same day that new inflation data
Central banks Add to myFT
for November showed the headline consumer price index was down 0.9 per
Asia-Pacific economy Add to myFT
cent compared with a year ago.
Japanese economy Add to myFT
Stripping out volatile fresh food and energy prices, the index was down 0.3 per
Monetary policy Add to myFT
cent compared with a year ago, and unchanged from the previous month on a
seasonally-adjusted basis.

Under governor Haruhiko Kuroda, the BoJ has made a determined effort to
revive inflation, purchasing government bonds worth more than 100 per cent
of gross domestic product and cutting interest rates below zero.

But while Japan has recorded an improved macroeconomic performance, it has

struggled to change public expectations of stagnant prices, no matter how great
the monetary stimulus.

At a press conference on Friday afternoon, Mr Kuroda said: “We are absolutely

not looking for the exit from our existing monetary easing or seeking to weaken
our monetary easing. Rather we want to examine whether we can ease even
more effectively.”

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" Moustacheless Man 7 DAYS AGO

I suspect Japan will ultimately go down the same path that many western countries are now embarking on
with de facto MMT. No inflation and zero interest rates means the path of least resistance is higher
government spending. Is just a matter of time before the penny drops.

# Recommend $ Reply % Share & Report

" DavidSF2012 l 7 DAYS AGO

Lack of population growth and the steady aging of the population have added to the issues. Having said that,
direct money transfers seem worth trying , as 0% interest rates have shown they simply don’t work.
https://upload.wikimedia.org/wikipedia/commons/thumb/5/55/Japan_Population_by_Age_1920-
2010_with_Projection_to_2060.png/1200px-Japan_Population_by_Age_1920-
2010_with_Projection_to_2060.png

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" F2020 7 DAYS AGO

<volatile fresh food and energy prices>
Meanwhile, in many other places like Russia, India, China (and actually UK as well, and will get worse after
Johnson's world beating oven ready deal (or no deal) ), food prices are rising, sometimes sharply.

# Recommend $ Reply % Share & Report

" Sound of the Suburbs 1 WEEK AGO

Where did Japan go wrong?
They used to understand the system in the past, but new ideas came in from the West.

Japan didn’t start issuing bonds until 1965 as the BoJ just created the money for the Government to spend.
There were no financial problems as both Government and private money creation from banks were carefully
controlled by the BoJ.
You need the right amount of money in the economy for the level of goods and services that economy
produces.
Bank credit needs to be directed into business and industry, to produce new goods and services in the
economy, and away from financial speculation.
Everything used to work very well, and by the 1980s it looked as though Japan would become the world’s
largest economy.

This is when it all went wrong.

They allowed banks lend into real estate and financial speculation in the spirit of new ideas of financial
liberalisation coming from the West.
By the end of the 1980s, Japan was a ponzi scheme of inflated asset prices and it collapsed.
The collapse in asset prices then fed back into the financial system.

They had done what the US had done in the 1920s, and were facing a Great Depression.
They could study the Great Depression to avoid that fate.

Richard Koo used to be a central banker at the Federal Reserve Bank of New York, and he looked at both sides
of the bank’s balance sheets during the Great Depression.
Richard Koo shows the US money supply / banking system (8.30 – 13 mins):
https://www.youtube.com/watch?v=8YTyJzmiHGk
1) 1929 before the crash - June 1929
2) The Great Depression before the New Deal - June 1933
3) During the New Deal - June 1936

The money supply ≈ public debt + private debt

The “private debt” component was going down with banks going bust and deleveraging from a debt fuelled
boom causing debt deflation (a shrinking money supply).
It was the public borrowing and spending of the New Deal that helped the economy recover.
The money supply ≈ public debt + private debt
The New Deal restored the money supply by increasing the “public debt” component of the money supply.
Once the New Deal was working, they reduced Government borrowing and plunged the nation back into
recession again.
The enormous public spending and borrowing of WW2, eventually sorted things out.

The money supply ≈ public debt + private debt

Japan learnt from the Great Depression.
They saved the banks.
They used fiscal policy to maintain the money supply as they deleveraged. This was the lesson of the New
Deal.
They paid down private debt and used Government borrowing and spending to maintain the money supply as
they deleveraged to avoid debt deflation.

Japan saved the banks, but left the debt in place.

They found that the repayments on that debt would kill growth and inflation for thirty years.
They had learnt from the mistakes of the Great Depression, but a new problem emerged.

This is why the Japanese didn’t do much QE until Kuroda, as they knew it couldn’t get into the real economy
when people were more concerned with paying off existing debt than taking on new debt.
QE would just get stuck in the financial system and couldn’t get out into the real economy.
Richard Koo has no idea what Kuroda is doing and has put this down to him having no central banking
experience.
Personally I think Kuroda does know what he’s doing.
He knows QE can’t get into the real economy due to a lack of borrowers, but is using it to inflate asset prices
as this is what QE does best.

# Recommend 1 $ Reply % Share & Report

" MacroHedge 1 WEEK AGO

Do
They also include air travel, hotels and tourism to the basket?

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" Joe (F.K.A. Donald) 1 WEEK AGO

It’s easy to criticise Japan for their failed policies and the rest or the world has indeed done so for the past 20
odd years. However the Japanese are ahead of the curve in term of deflation / depression so they are figuring
it out for themselves. But now those critics are finding themselves suffering the same problems and are now
making exactly the same policy ‘mistakes’!

# Recommend 4 $ Reply % Share & Report

" Michael Seeber 1 WEEK AGO

The BoJ is right to review its obviously flawed policies; it seems to be a foregone conclusion that they will just
do more of the same. QE doesn't work, and just doing more of it will not change that.

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" doc martin 1 WEEK AGO

LOL, yup prices don't rise because the public doesn't expect it. gotta love that magical thinking.

Have they tried mass hypnosis.

the contortions central banksters will go to make their illogical theories fit instead of admitting they were
wrong. it's easier to deal with the catholic church regarding matters of doctrine and get them to change

hike the vat 2% year, that will do it!!!!

# Recommend 5 $ Reply % Share & Report

" Moustacheless Man 7 DAYS AGO

$ In reply to doc martin
Why is it acceptable for non-economists to act as though they're more of an expert on something than
someone who is academically trained and with decades of experience (as Mr Kuroda does)? Would
you also LOL to a medical doctor if they told you had lung cancer because you were a heavy smoker?

If you were an economist you'd know that inflation expectations are the most important long term
determinant of inflation. I suggest doing some googling before making fun of someone who is an
expert in their field, otherwise you just make yourself look ignorant.

# Recommend 2 $ Reply % Share & Report

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