NC State Economist Dr. Mike Walden – Japan Joins the Club
Among the major economic powers of the world, Japan has perhaps suffered the most in recent years. There was the horrible tsunami and nuclear disaster, but Japan’s growth rate has been struggling for years, too. But as N.C. Cooperative Extension specialist Mike Walden points out, Japan is about to try something new when it comes to the economy.
“You’ve already indicated Japan has had economic issues really for decades now. Some people argue it’s because of changes in their demographics. They’re a very aging society. … The population is actually going down.
“But apart from that, Japan really just hasn’t been able to get its growth-rate going. And so we now have a new head of the Japanese Central Bank – this would be a kin to our Federal Reserve – who says that he is going to pursue an aggressive monetary policy. To translate, that means that the Japanese Central Bank is going to embark on money printing – … in this case, of course, yen.
“And what they’re hoping is that all of that additional cash will eventually flow into businesses. It’ll flow into consumers. It’ll generate more spending, … generate investments. It also will likely reduce the value of the yen against other currencies, which should help Japanese exports.
“Now the downside, of course, is that it could generate more inflation. That’s always a concern with money printing. But actually this may help the Japanese government. They have debt, actually on a relative basis, that’s higher than our debt. And when you inflate the value of a currency, you reduce the purchasing power of those dollars, and you effectively reduce the value of that debt.
“So this is going to be very interesting to watch, and in some sense … Japan is joining the rest of the world, because we’ve had aggressive monetary policies virtually everywhere since the recession.”