Reasons for picking the monetary economic policy
The monetary policy was chosen because it has multiple advantages. It is easy to explain and apply; the relevant information can be accessed easily. For example, it is possible to search the bank’s statistics (Bank of Japan, 2019). As seen from the picture, the Bank of Japan presents its statistics on the website and everyone might access it freely. One of the most prominent advantages of the monetary policy is the availability to offer price stability. Besides, it may increase economic growth and can promote lower inflation rates.
Economic policies control interest rates, manipulating government’s spending, and controlling the labor market. Abenomics involves boosting government’s spending, increasing the money supply. Three major Japan’s economic policies involve the fiscal policy that measures the government controls and adapts spending and taxation to meet desirable demand. The supply-side policy is the government involvement to increase productivity and increase efficiency in economic output; they are of two types. A free-market policy aims to increase competition and market efficiency. An interventionist policy is to overcome the challenges that may lead to market failures.
The monetary policy of Japan
The Bank of Japan controls money by influencing the rate of inflation, economic growth, and consumption rate. Contractionary policies decrease the money circulation to curb inflation and to keep the economy at an equilibrium. As seen from the picture, the bank presents a report analyzing the current market situation. Therefore, the Bank of Japan provides a current situation in the monetary market. Expansionary policies increase the supply of money by regulating the interest rates on borrowing low to encourage lending. The Policy-Making Board of Japan discusses the economic and financial situation, decides the guideline for money market operations and the bank’s monetary policy stance for the immediate future.
The MPMs measure the amount of money in the economy, majorly through open money operations (OMO). Depending on the values, the board decides to maintain the current policies or adjust the policies to achieve the desired equilibrium. The government buys bonds; more money is added into the economy, increasing the money supply. Discount rates increase the discount rates, enabling banks to borrow more money and facilitate the availability of loans.
Explanation of the monetary policy
The monetary policy of Japan includes reserve requirements, interest rates on excess reserves, and an inflation target. Increasing the reserve requirements tightens the monetary conditions by influencing the lending attitude of commercial banks, as this increases the cost of operation. Decreasing the reserve requirements eases the financial needs of the commercial banks, thereby increasing their ability to lend; this pumps more money into the economy. High interest rates on reserves are implemented on excess funds held by commercial banks to reduce their ability to lend money. The inflation target makes customers believe that the prices will increase; this fact encourages people to buy the product when the prices seem to be below.
Characteristics of the monetary policy
The monetary policy is adopted to meet specific laid down targets. Besides, its objective is to keep prices permanent, which leads the economy to the successful growth. There are several typical tools that help achieving the goal. The system of targets is used to adapt the monetary policy to meet specific standards. Operational target is an economic variable that helps keep the prices permanent. An intermediate target is an indicator that helps in the achievement of these contributes.
There are three typical regimes; the exchange rate targeting involves the Central Bank pegging the value of the national currency to the exchange rate of Japan. The monetary targeting regime uses one of the money supply indicators as an intermediate target. The inflation targeting regime assumes that the Central Bank achieves its ultimate objective by managing the inflation forecast.
Overall, the monetary policy has several advantages for picking it as an object of today’s discussion among multiple economic policies. For instance, it has a clear goal to keep pricing stable and permanent. For this reason, many instruments facilitate the monetary policy. Moreover, it is simple to explain and implement the chosen approach to the economy. It becomes apparent that the Central Bank conducts monetary policy. In this case, the Bank of Japan generates the work of the policy, and there are several regimes that help the monetary policy operate appropriately. Despite the monetary policy being influenced by fiscal policies, it may support economic growth and stabilize pricing.
Bank of Japan. (2021). Research and studies. Web.
Bank of Japan. (2019). Statistics. Web.
Benchimol, J., & Fourçans, A. (2019). Central bank losses and monetary policy rules: A DSGE investigation. International Review of Economics & Finance, 61(1), 289–303. Web.
Mankiw, N. G., & Reis, R. (2017). Friedman’s presidential address in the evolution of macroeconomic thought. Journal of Economic Perspectives, 32(1), 81-96. Web.