Japan: Let’s play a war without fire
You still care about the fiscal cliff? Move on from it, a big war is coming up. The successful election of Japanese Prime Minister Shinzo Abe has not yet resulted in shooting wars with China or Russia over islands dispute, but his newly announced economic policies to save Japan from persistent deflation did like a formal and tough declaration of war to its neighbors —a “currency war”.
“Currency war” is not actually a new word to us. After the United States earned a fortune out of expertising in playing such war, Abe decided to renew the records of the term. Under intense pressure from the freshly installed prime minister, the Bank of Japan (BoJ) announced it will raise its inflation target from 1 to 2 percent “at the earliest possible date” and gradually accomplish government debt purchases as promised. Also started from 2014, an open-ended purchase of bonds and other assets will be put on. To stimulate the economy, Abe is expecting such ultra-expansionary monetary policy in Japanese history indeed the prescription he is looking for. One fact may further strengthen his confidence: the value of yen has been driven down by 16 percent against U.S. dollar since the end of September. With the several rounds of “quantitative easing” (QE) conducted by the U.S. Federal Reserve (Fed), Japanese government is heading for the same path. What is “quantitative easing” policy then? Distinguished from some conventional monetary policy, it is the unconventional ones that, some presses even refer it as unorthodox, used by central banks to stimulate the national economy when other normal policies have been ineffective. At present, as decided by the Policy Board of BoJ on Monetary Policy Meeting held on February 14th, the interest rates are unchanged in the range between 0 and 0.1 percent. In other words, the economy has nearly been in a liquidity trap that short-term interest rates can no longer be lower. But through purchasing a...
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