Bank of Japan “Extra Stimuius Counterproductive” – April 2016 Update

Feb. 12, 2015

The Bank of Japan policy makers have said that continued monetary easing would be counterproductive step for now and it could trigger declines in the yen and damage confidence.

Since beginning of the BOJ easing two years ago, the yen has dropped 22%.  In December Governor Haruhuiko Kuroda stated that a weak yen tends to boost profits of companies with global operations and weighs on households and small firms.  This week he said that the yen’s drop from excessive strength hasn’t caused problems.

People close to BOJ are stating that the BOJ should not expand asset purchases because of the recent gains in exports and production and of the boost from fiscal policy.  Analysts expect the BOJ to start easing later this year, since inflation is missing the 2% target.

Governor Kuroda and others have said the consumer prices will rise this year as cheaper oil will provide a boost to the economy.  But if prices do not rise, further stimulus would be needed and they need to get more creative in the way stimulus is implemented.

With the yen near it’s lowest since 2007, concerns have risen amongst importers and smaller companies about their diminishing purchasing power.  Some banks have noted that the yen’s weakness has also hurt consumer sentiment and that has been helped a little by the lower gasoline prices, even though clothes and food prices have increased.

Ultimately many believe and some hope, that there will another round of stimulus later this year to help inflation reach the 2% target and help the economy to improve.  The degree will depend of the effects of the lower gas prices on increasing sales and rising consumer prices.  It will also be dependent on the effects of many other countries’ current rounds of easing.

Most countries’ debt is increasing and they need to keep increasing their debt.  They need to devalue their currency to make their debt “cheaper.”

Many, including Kuroda, say this will cause markets to rise.  Records highs will continue to be the norm in the markets and GDP will rise with the falling currencies.  But the effects for most people, will be higher prices for food and goods.

– Update –
Japan has gone to negative interest rates. When at least it’s not more stimulus.

https://mises.org/blog/and-so-it-begins%E2%80%A6-negative-interest-rates-trickle-down-japan

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