Unit 4 Macro: Abenomics - Changing Monetary Policy in Japan

Are you following important macroeconomic developments in Japan? The new government of Shinzo Abe is reforming monetary policy - including a change to the inflation target - and undertaking more aggressive fiscal measures. Will it work in lifting the Japanese economy to a higher growth plane after two decades and more of sluggish growth and the debilitating effects of price deflation?

FT Video

Fiscal Policy

The Japanese government has approved a fresh 10.3tn yen ($116bn; £72bn) stimulus package in an attempt to spur a revival in its economy. The package will include infrastructure spending, as well as incentives for businesses to boost investment. Tokyo estimates that the stimulus will boost Japan's economy by 2% and create 600,000 jobs (Source BBC business news)

Inflation Target

Having set an inflation target of 1% for CPI inflation in February 2012, Prime Minister Shinzo Abe, has called on the Bank of Japan (Japan's central bank) to set a "target" of a 2% rate of inflation. A higher inflation target would give the BOJ more freedom to use expansionary monetary policy to boost growth without sacrificing price stability in the medium term.

The Yen

The central bank is actively intervening in currency markets to bring about a depreciation of the Japanese yen, this ought to boost global demand for Japanese exports, inject more money into the circular flow and help to lift the share prices and capital investment plans of leading Japanese manufacturing export businesses such as Nissan and Toyota.

Uncertain effects of Abenomics (FT Video, May 2013)

Update (Financial Times, June 2014)