Bank of Japan Past History? Updated August 15, 2024.

 

Optimism swept Bank of Japan as inflation goal looked nearer, yen weak in 2014

Article Source:  https://mainichi.jp/english/articles/20240716/p2g/00m/0bu/008000c

Ideas:

The optimism was good and needed in Japan, at the time, but maybe there were just too many factors that might have prevented Japan from achieving the 2 percent goal.

As always there are positives and negatives related to monetary easing, as its good for those who need loans, good for export companies, when the yen is not so strong, but not so good for importers and prices of import products.

Also maybe Japan needed someone to be optimistic when the Japanese economy is/was stagnant and not growing that much.

Inflation is neither good or bad as it, again, as both positives and negatives depending on what side of the coin you are on. For example, inflation might signal an increase in demand as companies see their products in high demand and they increase prices as consumers continue to buy more. 

But then there is the idea of inflation related to companies increasing price due to their costs increasing, such as the weak yen and increase import prices and companies passing-on their costs to the next in the supply chain, including the final retail customer.

The consumption tax or sales tax was a huge hit for Japanese consumers and they were not able or willing to continue to spend normally, and the Japanese economy took a major hit in 2014, and for the most part, really hasn't fully recovered.

It might take some time for the Bank of Japan to normalize its policy, as there are many variables that need to be un-raveled, related to the weak yen policy, and its not going to be easy or fast.

At the same, maybe the monetary easing policy was the correct choice for Japan, at the time, and maybe its was not a good choice for the US or the EU, at the time.

For example, flooding the Japanese economy with ample funds might have worked, in normal times, where more money was available and maybe as businesses and consumers began to spend deflation might have decreased, but that wasn't the case as maybe the factors or variables related to deflation and weak growth had been set many years before, and there were just too many factors that might have prevented to policy to work normally.

Inflation in 2014 and 2015 was not that much, as maybe not many noticed the increase in consumer prices. It might not have been until companies and their profit margins began to lesson and they then had no choice but to begin to pass-on their prices to the next in the supply chain including the final retail customer.

Maybe it wasn't until the pandemic hit that real inflation began to be noticed and by then, due to the weak Japanese yen, and Japanese households were finally feeling the inflation problem and it became a major situation in Japan.

It seems that while the Bank of Japan always had good intentions and what seemed like good strategies, for Japan, they were always a step or two behind what was really happening in the Japanese economy.

It seems like there was never complete agreement on what do to or what was happening in the Japanese economy. That's not a bad thing as its good there are always different ideas and opinions on what is happening and what do to do.

An economy, the Japanese economy, is like a living organism, and there are many parts, sectors, all moving at the same time, and as a result its hard to predict exactly what is the best strategy for an economy, as normal textbook ideas don't work sometimes in the real-world economy.

The idea of reaching the 2 percent target in 2015 was not overly-optimistic, as there might have have been some sign/factors that suggest it might have happened, but again, there might have been too many variables that had been set many years before the were just too entrenched in the Japanese economy that prevented it.

Its obvious that the fading effects of the weaker yen didn't happen and inflation continued on in Japan. Its hard to predict what is going to happen in the future, so the Bank of Japan can't be faulted for not getting its predictions correct.

It appeared the Bank of Japan was trying to figure things out but there were just too many factors that were preventing it from reaching its goal of 2 percent inflation.

So the only thing they did was to continue the ultra-easy monetary policy, as maybe they felt the Japanese economy was just too weak to handle a rate increase like in the US or the EU.

A positive cycle of wage increases and price increases might show that demand is up in the Japanese economy, but its very hard to predict exactly, and consumers might not want to spend, to boost the economy.

The Bank of Japan needs to find ways to eliminate its debt situation, but at the same time, not cause any challenges for the Japanese economy. 

Increasing the key interest rate might help but it might not help and there is no way to tell when it would help the Japanese economy.

The weak Japanese yen has been a challenge for importers and import prices, which then are passed-on to those next in the supply chain and eventually the final retail customer.

Consumer sentiment has never been a major economic driver in the Japanese economy like exports or the Japanese car industry.

The challenge is consumer spending is only around 50 percent of GDP while in other advanced economies its more like 60 percent of GDP.

Have a nice day and be safe!