A Different Game- Japan

Unorthodoxy in a Central Bank Policy- Japan’s approach

In a world where ongoing destruction of war and destruction and inflation-recession fears, Japan was also in the game of saving its economy. But the economy did it in ways that were never anticipated and kept everyone in their brains with awe.

Over the last year, Japan has taken a different approach in terms of preventing the economy to enter into a recession. The approach was very unique and the world kept a close watch on the developments of the policies of the central bank. Considering the policies of the governor Haruhiko Kuroda, whose term is to end in 2023, wanted to make a mark of his own in terms of maintaining a low-interest rate. He advocated for a looser monetary policy.

The policy that he maintained was more of a “dovish” one for Japan, in spite of the fact, the global economy was going through a constant fear of recession and slowdown. With the global economy having its eyes on the United States Federal Reserve, with constant rate hikes to control inflation in the economy, Japan’s approach was more in terms of protecting the consumers’ confidence and business houses. Though it did come at a price of falling “Yen” it did keep a ceiling of rate hikes of .25 percent. This helped the Japanese economy to be more in tune with the path of recovery.

Kuroda was of the view that it was very essential to keep the inflation target in check at all times, and strong wages in the economy are an essential measure to keep inflation in check. The flip side to all these was that the currency fell to the lowest level, since the early 1950s. in this case, they had to pay more for imports. However, the business houses were able to gain a lot in terms of profits and did make the tourism sector more profitable. With the borders opened with changes in the pandemic border policies, tourism inflow proved to be a boon in disguise.

In a way, if one looks at the bigger picture, it gives Japan the to improve its infrastructure and offer better facilities to its citizens, since there is a lower borrowing cost. It is in a way helping the economy recoup from the losses caused by the pandemic.

Expected changes in 2023

The term of the current governor Kuroda now coming to an end in 2023, and the process of the election of a new governor is underway, and it remains to see what new approaches we can anticipate from the new governors. The election is underway with Masayoshi Amamiya and academic Masazumi Wakatabe, being nominated it remains to see what policies would come to the forefront to keep up with the changing times in the global economy.

Wakatabe is more likely to come with the aggressive easing in normalizing policies, it would be worth a wait to see what policies would help the Japanese economy to grow. Wakatabe has argued for raising the Japanese government bond purchases from the current 80 trillion yen ($750 billion) to 90 trillion yen and broadening the range of assets the bank purchases.

Amamiya was also instrumental in adopting yield curve control, another new policy tool, in September 2016. The first of the kind to bring such policies into the Japanese banking system, a radical change.

With their partnership and their election to the succession of Kuroda, it's most likely a change in terms of policy approach, with many benefits to the Japanese economy.