Chapter

Two Decades of Japanese Monetary Policy and the Deflation Problem

Edited by Takatoshi Ito and Frederic S. Mishkin

in Monetary Policy with Very Low Inflation in the Pacific Rim

Published by University of Chicago Press

Published in print October 2006 | ISBN: 9780226378978
Published online February 2013 | e-ISBN: 9780226379012 | DOI: http://dx.doi.org/10.7208/chicago/9780226379012.003.0005
Two Decades of Japanese Monetary Policy and the Deflation Problem

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This chapter reports a long comprehensive survey of Japanese monetary policy over the last two decades: the period of bubble and burst (1985–1997) and the issue under the new law of the Bank of Japan (BOJ) (1998-). It explores the monetary policy actions to prevent deflation. Given that a bubble is created, the effects from the bursting of the bubble could be moderated by monetary policy. The recent history of Japanese monetary policy has created problems for the Japanese monetary authorities today. These problems present the bank with particular challenges in getting the economy out of deflation quickly. Monetary policy becomes more difficult during deflationary episodes when interest rates hit a floor of zero. Management of expectations through adoption of a price-level target, and nonconventional policies that employ central bank purchases of other assets besides short-term bonds are the key elements of strategies to cure deflation.

Keywords: Japanese monetary policy; bubble; price-level target; Bank of Japan; deflation; Japanese monetary authorities; deflationary episodes; interest rates; expectations

Chapter.  33508 words.  Illustrated.

Subjects: Business and Management

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