Japan: Betting on Inflation Case Study Analysis
Weaknesses of Kuroda's Approach toMonetary Policy:
One of the weakness of this approach is that there were some indications that, in the course of 2013, inflation expectations raised. A private survey of expected 12-month increases in the CPI, excluding food for the last quarter of 2013, for example, raising from .5 % in November 2012 to .7 % in May 2013. One difficulty being faced by the program in increasing the inflation was that wages had not stopped declining. Base wages for “regular employees” were 4% lower in October 2013 than they were a year before, and this was the 17th consecutive month of such declines. Meanwhile, the weakness of the Japanese yen, led many Japanese companies to post record earnings. The government lacked the focus on the health care sector, which is considered to be the major weakness of this approach. As the expansionary monetary policy will be implement, it would reduce the value of JapaneseYen to 35 percent against the U.S dollar. This would adversely impact the export of the country, hence mitigating the exports of the country to boostaccording to the plan.
How will Abe's policies help Japan grow in the long-run?
The policies of the Japanese Prime Minister Abe help the country to grow in the long run in numerous ways, such as:pushing towards the expansionary monetary policy would allow the country to reduce the future budget deficits. Furthermore, it would stabilize the inflation rate of the country and limit the government spending. Through the implication of monetary policy, a number of the jobs would be created in the country, and the government would encourage the women labor force to work. The electric power sector would enable to diminish the electricity cost. Furthermore it would also provide benefitfor the health care sector. The government would improve the spending on the health sector through which, the health sector would improve and take a big pie in the GPD. Furthermore, achievement of the structural goals would be required to develop good relationships with other trading countries, while making their labor force more efficient, which can further reform their labor market. By doing this, the competitive position of the country would improve in the long run, which would enable the companies to improve the margins of GDP. Maintaining a relationship with foreign countries would help the country in import and export at more favorable terms. Furthermore, the implementation of the birth rate policy also provide benefits to the country in long run, such as: if the young population would be more encouraged to have more children, then the problem of the aging population would be reduced. Aging problem is considered to be a major bottleneck to the Japanese economy growth. If the birth rate of the country would grow then the skill labor force would also increase, otherwise in the upcoming years the country would have to face limitation in the pool of talent. When the birth rate and population of the country would improve, it will increase the consumption rate that ultimately allows the companies to improve their operational capacity that would work as another factor in the improvement of the GDP. Increase in the population would make the country self-sufficient for the skilled labor, and would allow the country to maintain its innovative capabilities in the skilled labor.
Conclusion
With the aim to reduce the inflation, the Japanese’s Prime Minister Abe has announced the three arrows. In the first approach he appointed a new governor of central bank that is the Bank of Japan. His task is to make the inflation rate consistent, for which he expanded the balance sheet. The second approach revolved around an expansionary fiscal policy, keeping in mind the reduction of the budget deficit. The third approach was aimed to look after the microeconomic reforms, where their target was to increase the GDP with the labor productivity. With Japan’s aging population, they decided to increase the female labor force. They had to decrease the electricity cost and bring improvements in health sector................................
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