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Towards the end of deflation in Japan ?: Monetary policy under abenomics and the role of the central bank

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  • Mahito Uchida

    (Université de Seijo)

Abstract

In this paper, I investigate the Bank of Japan's monetary policy effects under Abenomics at the initial stage. First, I describe briefly what is “Abenomics” and “New monetary policy under Abenomics” since April 2013. I also examine the causes of the sharp response of the yen and Japanese stock prices, the increase of consumer price index and the change of the public's expectations for economic activity and prices on surveys. In the second part I explain why the new monetary policy was effective in 2013, comparing the previous policy until 2012. Although there is not so big difference between monetary policies before and after 2012 theoretically, I point out the importance of the strong commitment by central bank, the cooperation with the government and “psychological impact” on public. The third part discusses the durability of the new monetary policy. The policy effects will be sustainable if a price becomes lastingly positive, which needs a durably positive output gap. Therefore, growth strategy by Abenomics plays an important role. I also point out that the BOJ has to perform the policy over side effects such as the impact on the government bond markets, the impact on other financial market and an outflow of money to overseas.

Suggested Citation

  • Mahito Uchida, 2014. "Towards the end of deflation in Japan ?: Monetary policy under abenomics and the role of the central bank," Sciences Po publications info:hdl:2441/7fp8n6moep8, Sciences Po.
    • Handle: RePEc:spo:wpmain:info:hdl:2441/7fp8n6moep83p9otmhc28tapl4
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    References listed on IDEAS

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    1. Takatoshi Ito & Andrew K. Rose, 2006. "Introduction to EASE-15: Monetary Policy with Very Low Inflation in the Pacific Rim," NBER Chapters, in: Monetary Policy with Very Low Inflation in the Pacific Rim, pages 1-5, National Bureau of Economic Research, Inc.
    2. Takatoshi Ito & Frederic S. Mishkin, 2006. "Two Decades of Japanese Monetary Policy and the Deflation Problem," NBER Chapters, in: Monetary Policy with Very Low Inflation in the Pacific Rim, pages 131-1997, National Bureau of Economic Research, Inc.
    3. Kazuo Ueda, 2005. "The Bank of Japan's Struggle with the Zero Lower Bound on Nominal Interest Rates: Exercises in Expectations Management," International Finance, Wiley Blackwell, vol. 8(2), pages 329-350, August.
    4. Kenji Nishizaki & Toshitaka Sekine & Yoichi Ueno, 2014. "Chronic Deflation in Japan," Asian Economic Policy Review, Japan Center for Economic Research, vol. 9(1), pages 20-39, January.
    5. Hiroshi Ugai, 2007. "Effects of the Quantitative Easing Policy: A Survey of Empirical Analyses," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 25(1), pages 1-48, March.
    6. Ito, Takatoshi & Rose, Andrew K. (ed.), 2006. "Monetary Policy with Very Low Inflation in the Pacific Rim," National Bureau of Economic Research Books, University of Chicago Press, number 9780226378978, December.
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    Keywords

    Abenomics; Monetary policy; Interest rates; Inflation target;
    All these keywords.

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