Effectiveness of the Easing of Monetary Policy in the Japanese Economy, Incorporating Energy Prices

16 Pages Posted: 10 Nov 2014

See all articles by Naoyuki Yoshino

Naoyuki Yoshino

Asian Development Bank Institute

Farhad Taghizadeh Hesary

Waseda University

Date Written: November 10, 2014

Abstract

Japan has reached the limits of conventional macroeconomic policy. In order to overcome deflation and achieve sustainable economic growth, the Bank of Japan (BOJ) recently set an inflation target of 2% and implemented an aggressive monetary policy so this target could be achieved as soon as possible. Although prices started to rise after the BOJ implemented monetary easing, this may have been for other reasons, such as higher oil prices. Oil became expensive as a result of the depreciated Japanese yen and this was one of the main causes of the rise in inflation. This paper shows that quantitative easing may not have stimulated the Japanese economy either. Aggregate demand, which includes private investment, did not increase significantly in Japan with lower interest rates. Private investment displays this unconventional behavior because of uncertainty about the future and because Japan's population is aging. We believe that the remedy for Japan's economic policy is not to be found in monetary policy. The government needs to implement serious structural changes and growth strategies.

Keywords: monetary policy, energy, oil prices, japanese economy

JEL Classification: E47, E52, Q41, Q43

Suggested Citation

Yoshino, Naoyuki and Taghizadeh Hesary, Farhad, Effectiveness of the Easing of Monetary Policy in the Japanese Economy, Incorporating Energy Prices (November 10, 2014). ADBI Working Paper 503. Available at SSRN: https://ssrn.com/abstract=2521335 or http://dx.doi.org/10.2139/ssrn.2521335

Naoyuki Yoshino (Contact Author)

Asian Development Bank Institute ( email )

Kasumigaseki Building 8F
3-2-5, Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

Farhad Taghizadeh Hesary

Waseda University ( email )

1-6-1 Nishi-Waseda,
Shinjuku, Tokyo 169-8050
Japan

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