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Japan’s New Monetary Policy: Some Critical Questions

In: Currency Cooperation in East Asia

Author

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  • Franz Waldenberger

    (Munich University)

Abstract

The Bank of Japan is running an unprecedented historic experiment by doubling its already record high monetary base to more than 50 % of GDP over the next 2 years. The aim is to escape from deflation and achieve 2 % inflation. This chapter questions the main assumptions underlying the new monetary policy: (1) There is little evidence that deflation is a major obstacle to Japan’s prosperity. (2) Japan does not seem to be suffering from insufficient demand. (3) It is not clear how the BoJ can control inflation expectations. (4) Even if it succeeds, it will face the challenge of controlling the negative side effects of rising nominal interest rates, an accelerating velocity of money, lower real wages and a devaluation of the yen that may spur a currency war.

Suggested Citation

  • Franz Waldenberger, 2014. "Japan’s New Monetary Policy: Some Critical Questions," Financial and Monetary Policy Studies, in: Frank Rövekamp & Hanns Günther Hilpert (ed.), Currency Cooperation in East Asia, edition 127, pages 43-55, Springer.
    • Handle: RePEc:spr:fimchp:978-3-319-03062-3_3
    DOI: 10.1007/978-3-319-03062-3_3
    as

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