Videos | November 18, 2014

What Europe can learn from Japan’s latest “massive monetary experiment”

The Bank of Japan has embarked on what might be described as a “massive monetary policy experiment” that ING economists say will be watched with interest well into next year.

In the eZonomics monthly economic update video, ING senior economist Martin van Vliet tells how the Asian country has a decade-long problem with deflation and introduced new measures to combat it.

“Abenomics” gets even bigger
Van Vliet says that at the end of October 2014, the Bank of Japan announced its asset purchase programme will be expanded even further than the earlier stimulus packages of “Abenomics”, launched in April 2013 under Japan’s Prime Minister Shinzo Abe.
“As a result, the size of the Bank of Japan’s balance sheet (relative to the size of the Japanese economy) will further dwarf that of its peers in the US and Eurozone,” van Vliet says.
It also announced more of the government pension fund would be invested in equities and overseas assets.

Weaker yen – cheaper exports
He says markets reacted to the aggressive monetary easing with a 10% jump in the Japanese share market by mid-November and a fall in Japanese yen of 6% against the US dollar.
“Japan has faced about two decades of low growth and falling prices,” says van Vliet.
“A weaker yen provides a boost to inflation by making imports more expensive and delivers a lift to growth through the export channel.”

Lessons for Europe?
Van Vliet says the main lesson for Europe of Japan’s battle against deflation may turn out to be a warning to avoid getting there in the first place.
“As such, the Bank of Japan’s experience should give the European Central Bank enough food for thought to take further action.”


eZonomics team
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