Monetary policy has become a savior of sorts for advanced economies in the last few decades as political entities are often too slow to react to crises. Following the earthquake/tsunami/nuclear crisis in Japan, the Yen strengthened dramatically against the Euro and Dollar for a variety of possible reasons. The G7 subsequently took action to weaken the Yen through unified action. The Bank of Japan independently took action to create additional liquidity immediately following the quake. If the BoJ takes further quantitative actions, they will face some scrutiny with further easing. However, as Bloomberg notes, the BoJ may be hesitant to take action that would finance further government borrowing. You might compare the BoJ’s immediate actions in comparison with what the U.S. central bank did during the time leading up to the passage of the TARP legislation. With the government slow to act, liquidity measures were taken to shore up some institutions. It should be noted though that if Japanese banks or corporations held large amounts of assets in the stricken regions, that there could be a solvency issue for institutions that were not (or could not be) properly insured.
Questions you might think about (Please don’t answer all questions)
- Do you agree with the actions taken by the Bank of Japan following the triple crisis? Were these actions similar to what happened after the Kobe earthquake in 1995?
- Do you think the G7 acted properly by helping to weaken the Japanese currency? Do you believe this will help Japan recover from the crisis?
- Should the BoJ accommodate further fiscal action by the Japanese government? Might this help Japan to finally break their long trend of slow/zero growth?