Abstract
In April 2013, the Bank of Japan (BOJ) introduced an inflation target of 2% with the aim of overcoming deflation and achieving sustainable economic growth. But due to lower international oil prices it was unable to achieve this target and was forced to take further measures. Hence, in February 2016, the BOJ adopted a negative interest rate policy by massively increasing the money supply through purchasing long-term Japanese government bonds (JGB). Previously the BOJ only purchased short-term government bonds. This policy has flattened the yield curve of JGBs. One the one hand, banks reduced the numbers of government bonds because short-term bond yields had become negative, and even the interest rates of long-term government bonds up to 17 years became negative. On the other hand, bank loans to the corporate sector did not increase, due to the Japanese economy’s vertical investment–saving (IS) curve. This chapter firstly explains why, in the view of the authors, the BOJ must reduce its 2% inflation target in the present low oil price era. Secondly, it argues that Japan cannot make a sustainable recovery from its long-lasting recession and tackle its long-standing deflation problem by means of its current monetary policy, and its negative interest rate policy in particular. It is of key importance to make the IS curve downward sloping rather than vertical. That means the rate of return on investment must be positive and companies must be willing to invest if interest rates are lowered. Japan’s long-term recession is due to structural problems that cannot be solved by its current monetary policy. The last section reports the results of our simulation of tackling Japan’s aging population by introducing a productivity-based wage rate and postponement of the retirement age, which will help the recovery of the Japanese economy.
Keywords
JEL Classification
Another version of this chapter is available as Yoshino et al. (2017).
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
Domestic production of primary energy (including nuclear)/domestic supply of primary energy × 100.
References
Bank of Japan (BOJ) (2016) Introduction of quantitative and qualitative monetary easing with a negative interest rate. 29 January. Tokyo. https://www.boj.or.jp/en/announcements/release_2016/k160129a.pdf. Accessed 10 Apr 2016
Blanchard OJ, Gali J (2007) The macroeconomic effects of oil shocks: why are the 2000s so different from the 1970s? NBER working paper 13368. National Bureau of Economic Research, Cambridge, MA. doi:10.3386/w13368
Government of Japan, Ministry of Internal Affairs and Communication (2015) Statistical handbook of Japan 2015. Statistics Bureau/Ministry of Internal Affairs and Communication, Tokyo
Hamilton JD (1996) This is what happened to the oil price–macroeconomy relationship. J Monet Econ 38(2):215–220
Japan External Trade Organization (2016) Japanese trade and investment statistics 2016. Tokyo
Kilian L (2008) A comparison of the effects of exogenous oil supply shocks on output and inflation in the G7 countries. J Eur Econ Assoc 6(1):78–121. doi:10.1162/jeea.2008.6.1.78
Lee BR, Lee K, Ratti RA (2001) Monetary policy, oil price shocks, and the Japanese economy. Jpn World Econ 13(3):321–349
Taghizadeh-Hesary F, Yoshino N (2013) Which side of the economy is affected more by oil prices: supply or demand? USAEE research paper 13-139. United States Association for Energy Economics, Cleveland
Taghizadeh-Hesary F, Yoshino N (2014) Monetary policies and oil price determination: an empirical analysis. OPEC Energy Rev 38(1):1–20
Taghizadeh-Hesary F, Yoshino N (2015) Macroeconomic effects of oil price fluctuations on emerging and developed economies in a model incorporating monetary variables. Econ Policy Energy Environ 2:51–75. doi:10.3280/EFE2015-002005
Taghizadeh-Hesary F, Yoshino N, Abdoli G, Farzinvash A (2013) An estimation of the impact of oil shocks on crude oil exporting economies and their trade partners. Front Econ China 8(4):571–591
Taghizadeh-Hesary F, Yoshino N, MMH A, Farboudmanesh R (2015a) The response of macro variables of emerging and developed oil importers to oil price movements. J Asia Pac Economy 21(1):91–102. doi:10.1080/13547860.2015.1057955
Taghizadeh-Hesary F, Rasolinezhad E, Kobayashi Y (2015b) Oil price fluctuations and oil consuming sectors: an empirical analysis of Japan. ADBI working paper 539. Asian Development Bank Institute, Tokyo
Yoshino N, Miyamoto H (2017) Declined effectiveness of fiscal and monetary policies faced with aging population in Japan. ADBI working paper. Asian Development Bank Institute, Tokyo
Yoshino N, Sakakibara E (2002) The current state of the Japanese economy and remedies. Asian Econo Pap 1:110–126
Yoshino N, Taghizadeh-Hesary F (2014a) Monetary policies and oil price fluctuations following the subprime mortgage crisis. Int J Monetary Econ Finance 7(3):157–174
Yoshino N, Taghizadeh-Hesary F (2014b) An analysis of challenges faced by Japan’s economy and Abenomics. Jpn Political Economy 40(3–4):37–62
Yoshino N, Taghizadeh-Hesary F (2014c) Analytical framework on credit risks for financing SMEs in Asia. Asia–Pac Dev J 21(2):1–21
Yoshino N, Taghizadeh-Hesary F (2015a) Effectiveness of the easing of monetary policy in the Japanese economy, incorporating energy prices. J Comparative Asian Dev 14(2):227–248
Yoshino N, Taghizadeh-Hesary F (2015b) Analysis of credit risk for small and medium-sized enterprises: evidence from Asia. Asian Dev Rev 32(2):18–37
Yoshino N, Taghizadeh-Hesary F (2016a) Introductory remarks: what’s behind the recent oil price drop? In: Yoshino N, Taghizadeh-Hesary F (eds) Monetary policy and the oil market. Springer, Tokyo
Yoshino N, Taghizadeh-Hesary F (2016b) Causes and remedies of Japan’s long-lasting recession: lessons for China. Chin World Econ 24(2):23–47
Yoshino N, Taghizadeh-Hesary F, Hassanzadeh A, Prasetyo AD (2014) Response of stock markets to monetary policy: the Tehran stock market perspective. J Comp Asian Dev 13(3):517–545
Yoshino N, Taghizadeh-Hesary F, Miyamoto H (2017) The effectiveness of the negative interest rate policy in Japan. Credit Cap Mark – Kredit und Kapital 50(2):189–212
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2017 Asian Development Bank Institute
About this chapter
Cite this chapter
Yoshino, N., Taghizadeh-Hesary, F., Miyamoto, H. (2017). The Ineffectiveness of Japan’s Negative Interest Rate Policy. In: Yoshino, N., Taghizadeh-Hesary, F. (eds) Japan’s Lost Decade. ADB Institute Series on Development Economics. Springer, Singapore. https://doi.org/10.1007/978-981-10-5021-3_8
Download citation
DOI: https://doi.org/10.1007/978-981-10-5021-3_8
Published:
Publisher Name: Springer, Singapore
Print ISBN: 978-981-10-5019-0
Online ISBN: 978-981-10-5021-3
eBook Packages: Economics and FinanceEconomics and Finance (R0)