Bank of Japan announces fresh stimulus to boost growth

[alp227]

Source: BBC

The Bank of Japan (BOJ) has increased its stimulus programme for the second time in just over two months in a bid boost the country's economic growth.

The central bank said it would expand its purchase of Japanese government bonds by 10tn yen ($123bn; £76bn).

The move comes as Japan's economy continues to struggle amid a slowdown in key export markets such as the US and eurozone and weak domestic demand.

The BOJ also left its key interest rate unchanged between zero and 0.1%.

Read more: http://www.bbc.co.uk/news/business-17865123

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Because austerity really WOULD work in Japan or anywhere in the world, right?

[Art_from_Ark]

1. Japanese exports are hurting because the yen is too strong

Much too strong.

I know a manager of a company that sells Japanese-made products to Europe. The contract was based on payment in euros, which at the time of signing were valued at about 130 yen per euro, and which the company based its profit margin on a break-even level of 115 yen per euro. Today, the euro is only about 107 yen, meaning that the more his company sells to European customers, the more money it loses.

[naaman fletcher]

2. to be fair,

Japan has been doing this exact thing for 25 years and it hasn't worked. I am all for stimulus, but the thing that Japan has done (and the US is doing now) is primarily protecting the insolvent banks.

The simple fact is that failed companies need to be allowed to fail. When they are not allowed to fail, the country never moves forward as all the capital, people, etc. is tied up in failed enterprises.

[Art_from_Ark]

3. It's far more complicated than that

Read my post #1. Since 1971, the yen has appreciated in value against the dollar by 451%. No other export-oriented country in the post-war era has had to deal with that kind of foreign exchange handicap. Also, several Japanese banks *have* failed in the past 25 years, among them Hokkaido Takushoku Ginko, Nihon Choki Shinyo Ginko, and Nihon Saiken Shinyo Ginko, and Ashikaga Ginko was nationalized for a while in 2003. Having more banks fail in Japan isn't going to do a damn thing to help the economy. However, getting the yen back to around 100 per dollar will do a lot to help Japan's export industries.

[naaman fletcher]

4. well,

I am not disagreeing with you on the Yen, but I disagree strenuously on the importance of banks failing.

When banks fail, their assets are picked up and utilized more effectively by younger, newer, and better (i.e. not dumbasses who caused it to fail in the first place).

When banks are not allowed to fail, all sorts of government policies are used to prop then up under the theory that they will lend more. As we see in Japan and not the US, there is no increased lending. Rather, the banks hoard their cash to try to survive, and ultimately don't because, remember, they are the idiots that ran it to the brink in the first place.

[Art_from_Ark]

5. You really should learn more about the situation here in Japan

Japan's real problems started with the 1985 Plaza Accord, and subsequent "voluntary" export limitations which were like a one-two punch to its export industries. Japanese banks had been making loans to foreign entities in foreign currency, but the Plaza Accord whammied them, too. Think of it this way-- on February 1, 1985, just before the Plaza Accord, the yen was around 260 to the dollar. By April 1988, then yen was at 124 to the dollar.

http://research.stlouisfed.org/fred2/data/EXJPUS.txt

That meant that exporters that had been making a profit at 260 yen or even 200 yen/dollar were finding it increasingly hard to compete because the yen had more than doubled in value against the dollar in just 3 years! And bank loans that were repayable in foreign currency (dollars) were increasingly losing value in yen terms. That also meant that loans that had been made to Japanese companies that were buying properties in the US and other countries were also decreasing in value. So, with falling exchange rates making overseas loans riskier, Japanese banks turned inward. They were loaning money like crazy in the late '80s and early '90s, and then it all came tumbling down.

Today, it's not that banks won't lend money-- I see all sorts of advertisements for low-interest bank loans. If I wanted a mortgage, I could get one for 1.5 to 2%, for example. But Japanese as a whole are not big borrowers. They certainly wouldn't take out a vacation loan, or an appliance loan. Probably not a car loan, either. At the same time, Japanese are big savers. So there is a lot of money sitting in banks, but there is not so much demand for loans from the average Japanese consumer.

[naaman fletcher]

6. Interesting, thanks. Nt

[Art_from_Ark]

7. Take a look at the link I posted

I think that will help you to get a better idea of what Japan has had to deal with in terms of exchange rates.

[Snake Alchemist]

8. Why can't they be more like Americans and not save anything?