Bank of Japan Prepares to Unleash Unprecedented Stimulus

Japan’s economy, which is reeling from decades of poor production, high national debt and Chinese competition, has developed severe weakness recently that put the nation’s central bank and its citizens in severe jeopardy according to a article. Prime Minister Shinzo Abe, who has considered stimulus packages, helicopter money, new technologies and other economic fixes, finally has settled on a ¥28 trillion, or $274 billion, stimulus package that he hopes will get the economy out of its doldrums. The funds will be split between shoring up infrastructure, financing a high-speed magnetic-levitation train and granting loans to low-income people.

BOJ Responds to Weak Economic Indicators with Adjustable Plan to Stimulate the Economy

Bank of Japan Governor Haruhiko Kuroda promised that the country’s central bank wouldn’t hesitate to support the measure and increase the amount of the stimulus if it should prove necessary. Kuroda made this announcement while visiting the United States for the Federal Reserve’s annual policy retreat, which was held in Jackson Hole, Wyoming. Japan’s laundry list of economic shortcomings include:

  • Consumer prices recently fell 0.5 percent in July of 2016 from those in June of 2015.
  • This was the steepest drop in prices since March of 2013.
  • Household spending fell for the fifth straight month.
  • Total retail sales also dropped significantly.
  • Japan’s national debt dwarfs other countries at 250 percent of its gross domestic production.
  • Benchmark interest rates have dropped below zero into negative territory.
  • The BOJ has tried to shore up the bond market by guaranteeing to buy $90 billion worth of bonds per month until March of 2017.
  • Deflation and sluggish growth have limited Japan’s options since the 1990s.

The BOJ policies allow the government to borrow money at low interest rates. Prime Minister Abe is said to be intent on increasing domestic production by 1.3 percent, rebuilding the country’s infrastructure, providing subsidies for people who leave work to care for their children and funding other social services.

Japan’s Staggering Debt Begs the Question: Too Little, Too Late?

Japanese Prime Minister Shinzo Abe and his predecessors have had little success with stimulus money according to a report. Unfortunately. Japan is fighting decades of weak production, smaller GDP totals, a shrinking workforce and burgeoning debts that approach 250 percent of GDP, which is higher than every other leading economy in the world. Critics suggest that, although these stimulus packages provide an economic lift, Japan’s problems may be more intractable than simply stimulating the economy and taking on even more debt.

However, there are some encouraging developments. The yen recently gained on the dollar, and the currency has strengthened against many other foreign currencies. This makes imports cheaper for Japanese consumers and generates more wealth and positive trade balances from the country’s exports. However, that doesn’t help the country’s problems with deflation, or falling prices.

Other problems for Japan include the country’s bond market.Bank of Japan Governor Haruhiko Kuroda, known as an aggressive maverick, brings unknown qualities to any potential economic recovery. Kuroda has implemented a program of buying Japanese bonds, which raises the bonds’ values while lowering their yields. The program has drawn lots of criticism

Helicopter Money Hasn’t Been Ruled Out Completely

The concept of providing “helicopter money,” or directly delivering funds to different industries without using banks as agents in the distribution process, remains on the table despite assurances that government officials abhor the concept. A report quotes Lee Jin-Yang, an Aberdeen Asset Management analyst, who commented, “While helicopter money is a concept still frowned upon thus far, such coordination does make the first step in blurring the line as central banks run out of stimulus measures.”

Stimulus money–regardless of which country is using it as an economic tool–can generate positive or negative consequences based on how deftly the project is handled, who receives the funds, how they’re distributed and economic developments during the distribution period. It’s often a fine line that determines whether a given stimulus package will succeed. The

United States seems to have negotiated the process successfully in 2008 and 2009, but other countries have had weaker results from similar stimulus programs introduced during the same period. It will be interesting to study what happens in Japan–with a huge stimulus program in the works– to see if it works or whether the country will try directly managing the economy by distributing helicopter money. Find out more about Japan’s unprecedented stimulus package at the

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