macro economics (Japan eases monetary policy in deflation fight )

Topic: macro economics (Japan eases monetary policy in deflation fight )

pleas dont forget this is reoprt……

The following AFP, Reuters report was published on 14/2/2012 in the Sydney Morning Herald,

Japan eases monetary policy in deflation fight
‘The Bank of Japan has unexpectedly loosened monetary policy even further, by topping up asset purchases in the face of mounting political pressure for bolder action to beat deflation and ease the pain on the economy from a strong yen. The central bank boosted its asset buying and lending scheme, under which it buys government and private debt and lends cheap funds against various types of collateral, by 10 trillion yen ($120 billion), to 65 trillion yen. The entire increased amount will be for purchases of long-term government bonds, the Bank of Japan said. As widely expected, the Bank of Japan left unchanged its key interest rate at a range of zero to 0.1 per cent by a unanimous vote. The easing, which follows a similar step in October, is intended to help nudge the year-on-year inflation rate to 1.0 per cent, the bank said. ‘‘The outlook for Japan’s economy continues to entail high uncertainty regarding the prospects and outcomes of the European debt problem, the supply and demand balance of electricity and the effects of the yen’s appreciation,’’ the Bank of Japan said. ‘‘The goal of overcoming deflation will be achieved through such efforts to strengthen growth potential and support from the financial side,’’ the bank said.’ AFP, Reuters (14/2/2012) Japan remains one of the world’s largest economies, a key investor in China, and until recently (when overtaken by China) Australia’s largest trading partner. Following four decades of highly successful economic development, Japan went through a financial crisis in the early 1990s, and subsequent adjustments driven by demographic changes and the rise of China. Like all economies, Japan was seriously affected by the Global Financial Crisis in 2009-10, and then experienced a major natural and environmental disaster with significant social and economic costs in 2011 (with continuing implications for ‘the supply and demand balance for electricity’). Like all economies, Japan is faced with a highly uncertain global economic environment in 2012. With reference to the article, other reputable news sources, academic sources, your study text and our lecture materials (including the AD/AS model), you are required to prepare a report explaining and discussing a range of economic issues relating to this news story. You should consider the following issues in your report.

i. The difference between inflation and deflation, and the reasons the Japanese authorities might prefer moderate inflation to deflation. The circumstances which might cause deflation to occur, and the alternatives available to governments (and central banks) when such circumstances arise. These alternatives include the active use of fiscal and monetary policy.

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