Japan’s economy has been in arrested development for over two decades now. Since its collapse at the beginning of the 90s, Japanese production has contracted drastically. The economic crisis of 2008 did not help, and as recently as the period from 2012-15 Japan lost nearly $2trn worth of output according to the IMF.
The Bank of Japan (BoJ) is facing a fight to keep its independence from the Tokyo government after the reappointment of Haruhiko Kuroda as governor. Kuroda has cleaved closely to Prime Minister Shinzo Abe and his eponymous Abenomics. The program of economic stimulus measures is aimed at getting Japan out of a malaise that it has suffered from for the past twenty years. Kuroda, a key ally in the implementation of Abe’s ideas, has been reappointed to another five-year term as head of the Japanese central bank.
Hampered by a strong yen, which makes exports of Japanese goods more expensive for foreign consumers, Prime Minister Abe launched a wide range of fiscal and monetary policy initiatives aimed at jump-starting growth. Inflation was targetted by this regimen, with a rate of 2% hoped for, and the BoJ was entrusted to deliver this. While a weaker yen was achieved, this backfired in the short term as Japanese manufacturers were reliant on imports for raw materials and fuel. Compounding this was the Fukushima nuclear disaster, after which Japan shut down its nuclear power program. A weaker yen paying for more foreign oil and gas meant that electricity prices rose and damaged manufacturing performance. Japan became dependent on imports for power, only able to generate 6% natively after the nuclear program was mothballed.
Negative interest rates, where banks are forced to pay a fee based on deposits, were also imposed by the Central Bank as a way to incentivise lending. Banks have been charged .1% on held reserves since 2016, and there is no indication that this will be raised soon.
Kuroda was appointed Governor of the Bank of Japan in the wake of Abe’s election. Inheriting negative inflation when he became head of the Central Bank in 2012, Kuroda was successful in meeting his target in 2014. Since then, however, there has been a slowdown in inflation. Recent news has led to more optimism about being able to meet the goal. February’s year-on-year rate of 1.5% is the highest it has been in years.
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