...end of the 20th Century, Japan was officially recognized as an economic superpower throughout the world. However, growth never lasts forever and by the 1990s, Japan’s economy had come to a grinding halt due to a massive collapse in both the real estate and stock markets of the Japanese economy and remains in a recession that has lasted till now. As Japan looked to face another year of stagnant growth of the economy, Japan’s Prime Minister, Shinzo Abe, decided enough was enough. With the assistance of the new governor of the Bank of Japan, Shinzo Abe embarked on a radical economic plan that focused on three arrows of design. The arrows depict the strategy of Shinzo Abe’s “Abenomics” program in which it focuses on fiscal stimulus, monetary easing, and structural reforms. (International Monetary Fund 2013) It is almost near the two year mark since the implementation of Shinzo Abe’s “Abenomics” program has begun. Although typically, economic effects of governmental policies require years to fully see the effects, “Abenomics” was designed as a jumpstart program with future decisions dependent on the immediate aftereffects of implementation. With the initial completion of the first two arrows of the “Abenomics” economic program and the implementation of the third arrow of structural reforms of the Japanese economy, labor, and tax...
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...Learn from Japanese Bubble 1. Easy monetary policy works, but there are risks in the exit. The Federal Reserve’s quantitative easing measures over the past few years have allowed the U.S. economy breathing room to get back on its feet after the worst downturn since the Great Depression. But there are risks that still lurk. If policymakers increase taxes too soon, or if they read the recovery prematurely, they could put the still-tentative U.S. economic recovery in real danger, Goto said. “It’s difficult to measure whether this economic recovery has legs or not,” she said. “In hindsight, the BOJ had misread a lot of the performance of the Japanese economy, and had toyed with the idea of ending that gush of money. What Abenomics has been able to do is to turn back on the spigot,” she said, referring to the current Japanese Prime Minister Shinzo Abe’s plan to breathe life back into Japan. “Japan should have been doing that a lot earlier, so that a comeback could have been easier,” Goto added. “We can learn from that." 2. You can’t divorce financial markets from ‘Main Street’s challenges. Consider what has happened in Japan in recent months. After two decades of subpar performance, the stock market there staged a sharp rally last year, tacking on gains of about 50 percent in roughly 13 months. Japanese stocks took off because of an aggressive round of new easing that was the first part of Abenomics. But what came next was an increase in the consumption tax in an effort to narrow...
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...The Rise (and Fall) of the Japanese Yen Lawrence Cifarelli III, Nazanin Ershad, Natthima Sonsoem, Anyesha Mahaptra University of New Haven Abstract This Case study provides an insight to the fluctuations experienced in the currency of Japan, Yen from the late 1990’s to recent years. Japan follows the floating currency monetary policy due to which there is no measures taken on to control the fluctuations. Japan experienced magnificent growth through the 60's, 70's, and 80's leading into the 90's beginning. In the late 1990's, Japan’s economy marked its growth significantly slower, which had then come to be known as the 'lost decade' due to Japanese Asset Price bubble that collapsed. Eventually the nation faced major issues regarding environmental disasters, hollowing out of industries, etc. The past events which have caused the rise and downfall of Japanese Yen has been illustrated for examining the causes of the appreciation and depreciation of this currency. The influence of this floating currency on Japan's economy has been depicted in this case study. This paper also provides some applications of the measures that can maintain the stability of the Japanese Yen. Japan experienced tremendous growth throughout the 1960s, 1970s, and 1980s leading into the leading into the early 1990s. After World War II, Japan underwent a period of restoration followed by the events in 1978 where Japan excelled as a manufacturer partnering with the United States which helped to make its...
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...The Japanese Economy Tanya Savage Pennsylvania College of Health Sciences The Japanese Economy This paper will analyze the economy of Japan including its people, geography and of aspects of the economy. Japan is a country that is located on a Pacific Ocean island on the eastern side of Asia (Gao, 2001). It stretches from Taiwan and East China Sea to the sea of Okhotsk in the north of Japan. Japan has a population of 126 million within its capital city; Tokyo having a population of 30 million, thereby making Japan the tenth most populated country in the globe (Flath, 2005). In total, Japan contains 6,852 islands with four major islands making up 97% of the total land area. This islands include Hokkaido, Shikoku, Honshu, and Kyushu (Alexander,2003). There is no particular official language and the recognized regional languages include Aynu itak, Eastern Japanese, Ryukyuan languages, and Western Japanese (Flath, 2005). The government of Japan is a unitary parliamentary constitutional monarchy, where the emperor is called Akihito and the prime minister is called Shinzo Abe. Japan is the second largest developed country, the third largest economy in the globe in terms of nominal GDP, and fourth largest in terms of purchasing power. In addition, it is the leading creditor nation in the globe (Alexander,2003). Based on these facts, Japan is part of the Group of Eight. Japan has the largest industry of electronics in the globe and also the third largest manufacturing industry of...
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...Prime Minister Abe strongly appealed to the global media his intention towards reforming Japans current economy and to be released from the long lasting recession that has been tormented the lives of the citizens. In the OECD Ministerial Council Meeting that was held on May 6th, he explained the source of Japans hardship lays within the 20years of deflation. This long lasting deflation has begun since the latter half of the 1990s. Inflation expectations fell, resulting a negative output gap and other factors such as a decline in import prices and a rise in interest rates occurred since then until now. The definite cause for the continuation of deflation is that consumers rejected to pour money in to the economy, saving what little money they had. In order to encourage citizens to put more money in to the market, governments took countermeasures such as handing out a portion of money to each and every family, however this policy ended up being useless. Staring from April, Abe launched one of his “three arrow” policy and raised the consumption tax from 5% to 8% and will eventually rise to a 10% tax rate. Also, there is even a theory that mentions the decrease in the number of children is the direct cause of deflation. Abe wishes to build a new economic order with the EU and at the same time promotes political measures to eliminate tariffs between countries for free trade. He states that by executing free trade by setting up a rule that is fair for all states, we can create a vigorous...
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.... In the 1980s Japan was viewed as one of the world’s most dynamic economies. Today it is viewed as one of its most stagnant. Why has the Japanese economy stagnated? The Japanese has stagnated due to Japanese banks. The banks over lent, made it easy to borrow and in turn created bad debt, it make it difficult to replace the money borrowed and cause a deficit causing the deflation in the country. “The Nikkei average plunged from nearly 39,000 points in December 1989 to about 14,300 points in August 1992, thereby losing about 60% of its value. As a result, investors lost the equivalent of (U.S.) $2 trillion and property values plummeted by about $10 trillion. Property values in certain parts of the country declined by 70% and plunged Japan into a deep recession for 10-years.” (Alston, 2013) To summarize the stock market collapsed, property prices dropped, banks curtailed the easy lending practices the created the economic boom, consumer spending halted- recession created, deflation, and the Japanese government was unsuccessful 2. What lessons does the history of Japan over the past 20 years hold for other nations? What can countries do to avoid the kind of deflationary spiral that has gripped Japan? Other nations can learn from what happened with Japan. Strict lending practices should have been in place to begin with, this would help decrease the amount of bad debt. The Government need to watch its spending. Japan is stuck because its debt is so high, it is extremely...
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...Japan’s Economic Malaise In 1989 Japan was widely viewed as an economic super-power. After three decades of robust economic growth it had risen to become the world’s second-largest economy. Japanese companies seemed to be obliterating entire American industries, from automobiles and semiconductors to earthmoving equipment and consumer electronics. Japanese companies were buying assets in the United States, including movie studios (Universal Studios and Columbia Pictures), golf courses (Pebble Beach), and real estate (the Rockefeller Center in New York). The stock market was booming, the Nikkei index hitting an all-time high of 38,957 in December 1989, an increase of more than 600 percent since 1980. Property prices had risen so much that one square mile of Tokyo was said to be worth more than the entire United States. Books were written about the Japanese threat to American dominance. Management theorists praised Japanese companies for their strategic savvy and management excellence. Economists were predicting that Japan would overtake America to become the world’s largest economy by 2010. It didn’t happen. In quick succession the stock market collapsed and property prices rapidly followed it down. Japanese banks, which had financed much of the boom in asset prices with easy money, now found their balance sheets loaded with bad debt, and they sharply contracted lending. As the stock market plunged and property prices imploded, individuals saw their net worth shrink. Japanese...
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...worldwide financial crisis in 2008, Bank of England (BoE) and other central banks seek to stabilize and stimulate the economy by conventional and non-conventional policies. It seems that one of the non-conventional policies, called quantitative easing (QE), has become the most popular and controversial topic. In March 2009, the bank’s Monetary Policy Committee (MPC) announced that the central banking would purchase the financial asset. They would use the central banking reserves created electronically to achieve this. More specifically, the BoE announced a 50 billion pounds increase in the program of purchasing the asset, to 375 billion pounds totally. However, it was not the first time that central banking used such monetary policy. From 2001 to 2006, the Bank of Japan purchased a great number of public loan and long-term bond to infect the liquidity to the market when the domestic economy was depressed continually and a sharp drop on investment. It seems that QE is an effective way to stimulate the economy and promote the recovery from the financial crisis. However, it may cause the hyperinflation and destroy the whole financial system if it was out of management and supervision. Firstly, this essay will provide a definition of quantitative easing. Further, it will discuss how QE affects the economy and the aims that governments seek to achieve. At last, it will evaluate the advantages and disadvantages of QE as a monetary policy. First of all, in average time, if the central...
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...Abstract Evaluation of the Quantitative Easing (QE) stimulus package was reviewed within the framework of this research. The financial crisis that resulted after the collapse of the auto industry along with the savings and loans scandals has given rise to QE. QE can be defined as an attempt to subdue interest rates which in turn encourages spending and stimulates the economy. The U.S. is currently on round three of the QE program. Research of QE seemed important as it has been extended three times. This research attempted to answer what the role of QE is in our economy and what the effects are on our business sector. Also, whether or not this stimulus is actually helping the U.S. was called into question. The preliminary data did not support that QE was actually helping as the results have been very slow or non-existent. Whether it is or is not helping may not be seen for years to come. The role of QE to stimulate the economy has been very slow as well and the results on the business sector have only increased the price of gasoline as well as other commodities. The increased costs have been passed on to the consumer which has not aided in stimulation of the economy. Overall, QE has not afforded many benefits and has done nothing more than subdue interest rates, slow the decline in Gross Domestic Profit (GDP), increase transportation costs, and devalue the U.S. dollar. Table of Contents Introduction………………………………………………………………………………………..4 Literature...
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...Essay Plan * How Financial Markets function normally? EMH and its alternatives - EMH alternatives - Option-pricing models, risk-weighted portfolio, index funds, derivatives, securitised mortgages that are supposed to spread and reduce risks. Free Market Theory, capitalism. * The last four years have seen radical changes in how financial markets operate. Since the economic crash, how have the Financial Markets changed how they function? Nationalization of banks (bailouts); G20 conference financial packages on offer; BRIC countries wanting more say/power in the global order; Quantitative Easing and LTRO (European Sustainability Fund, Troika) in Western banking. * Can this new financial system be sustained when it is so heavily dependent on Central Banking bailouts? * Hedge Funds – why is money flowing so easily into more risky hedge funds? Hedge funds are the child of volatility BAC 5014 - Investment Markets & Principles Commentators have argued that the glut of Central Bank money is underpinning the markets in a way that takes away any pretence of “efficiency” and far away from normal liquidity constraints. a) To what extent do you agree and why? b) Within this new framework Hedge Funds continue to attract new sources of finance- evaluate why might this be? How Financial Markets function normally? Financial Markets are all about the raising of capital and the matching of those who want capital, borrowers, and those who have capital, lenders...
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... 44055574 The two objectives of the FOMC are to maximum employment and price stability. With the inflation at around 2% and the latest unemployment rate being 5.9%, it is time for the Fed to start to return the monetary policy back to normal. In September of 2012, Fed chair Ben Bernanke announced an indefinite program of $40bn per month in asset purchases. Some feared this quantitative easing would never come to an end. However, under new chair, the Fed plans to stop quantitative easing. The Fed’s balance sheet is around 4.4 trillion, up from 900 billion before the crisis; this was caused by the bond purchasing . At this point in the economic recovery, the growth and job creation has some momentum, which can be expected to continue without this stimulus. The issue with this monetary policy is that it may in fact be creating asset bubbles similar to those that contributed...
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...Question 1. (a) Explain what you understand by each of the following terms. In each case give an example relating to the financial markets to illustrate your answer. • asymmetric information • moral hazard • quantitative easing (QE) Asymmetric information In the financial market, asymmetric information is a situation in which economic agents involved in a transaction have different information. It happens in the transaction when the buyer has more information than the seller, or contrary, as when a private motorcycle seller has more detailed...
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...TABLE OF CONTENTS Page Cover Page 2 Table of Contents 3 1. Introduction 4 2.1. Expansionary Monetary Policy 5 2.2. Contractionary Monetary Policy 6 2. Overview of the United States Monetary Policy 7 2.1 Overview of Recent United States Monetary Policy 8 3. Recent (2011) Direction of Monetary Policy 10 4. Market Reaction to Monetary Policy 12 5. Conclusion 15 6. Reference List 16 1.0 Introduction In macroeconomics, monetary policy is an importance tool to Central Bank and is a policy set by the members of Central Bank. It is an economic strategy chosen by government that authorizes Central Bank to regulate and influence the economic activity by controlling the monetary base flow into national economy. The goals of monetary policy are to promote growth of the economy, stability of prices and reduce unemployment rate. Monetary policy can be classified into two categories, namely expansionary monetary policy and contractionary monetary policy. Although, the objective for the two policies is the same, they adopt different approaches in reaching this objective. Expansionary monetary policy is used when a country is facing a recession in the economy business cycle, whereby it increases the money supply in economy system...
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...QUANTITATIVE EASING: A RATIONALE AND SOME EVIDENCE FROM JAPAN This paper was prepared for the NBER International Seminar on Macroeconomics 2009. Volker Wieland thanks the European Central Bank for support as Duisenberg Research Fellow while the initial presentation for the ISOM conference in June 2009 in Cyprus was prepared. The help of Alberto Musso from the European Central Bank in collecting data on Japan is gratefully acknowledged. Helpful comments by conference participants, and in particular by Huw Pill, Vincent Reinhart, Frank Smets, Christian Thimann and Athanasios Orphanides were highly appreciated. The usual disclaimer applies. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2009 by Volker Wieland. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Quantitative Easing: A Rationale and Some Evidence from Japan Volker Wieland NBER Working Paper No. 15565 December 2009 JEL No. E31,E52,E58,E61 ABSTRACT This paper reviews the rationale for quantitative easing when central bank policy rates reach near zero levels in light of recent...
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...Introduction In recent 3 years, Japanese Yen has depreciated against USD rapidly, from 78.6 USD/JPY in 2012 to about 120 USD/JPY in 2015. Will Japanese Yen continue to depreciate against USD? This question is worth researching. This study will be totally divided into two parts. The first part aims to analyze the past performance that how much JPY appreciated or depreciated against USD between Jan 1st 2015 to Oct 31st 2015 and the reason about this past performance. Meanwhile, through different methods, the second part try to forecast exchange rate of USD/JPY in the future at the end of 2016. JPY/USD from Jan 1st 2015 to Oct 31st 2015 According to the following Figure 1, the close exchange rate of JPY/USD in Jan 1st 2015 was $0.00835/¥ and it was $0.00829/¥ in Oct 31st 2015. It seemed that the exchange rate remain stable within the 10 months, while the big fluctuation existed during this period. The lowest close exchange rate JPY/USD was $0.00796/¥ and the highest one was $0.00861/¥. Specifically, if a speculator used 1,000,000 Yen to buy dollar at the highest exchange rate and sold these dollar for Yen at the lowest exchange rate, he would obtain 1,081,714 Yen at the end, whose profit was much higher than depositing in the bank. Therefore, the fluctuation between JPY and USD made the exchange rate hard to predict. In addition, the percentage of change in exchange rate was – 0.72% during this period. It indicated that JPY had depreciated 0.72% against USD from 1/1/2015 to...
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