Causes of Japan's Low Inflation in the 21st Century

Seminar Paper , 2022 , 26 Pages , Grade: 1.3

Economics - Macro-economics, general

The objective of this paper is to not only give an overview of Japan’s Lost Decades and its pioneering use of monetary and fiscal policy measures, but to also investigate why Japan was unable to lift itself out of the deflationary slump. Over the years, the literature has identified a variety of different factors, that have temporarily pushed the Japanese inflation rate into negative territory, but no single explanation was yet able to reveal the permanence of it. This paper will hence follow the literature in considering different factors, grouping them into demand and supply factors, to ease the analysis. An additional focus of this study will be on the Bank of Japan’s pioneering, yet dissatisfying use of monetary policy.

Japan’s struggle with (consumper price) deflation began in the aftermath of the asset bubble and subsequent banking crisis in the 1990s. The period since then has become known as the Lost Decades, which are characterized by negative output growth, moderate deflation, as well as rising income inequality. While Japan’s bouts with deflation are interesting from a practical point of view, regarding their negative consequences on the economy and ultimately the people of Japan, they are even more interesting from a theoretical point of view, as part of a discussion and refinement of alternative theories of economic fluctuations.

Inhaltsverzeichnis (Table of Contents)

• 1 Introduction
• 2 Japan's Struggle with Deflation
• 3 Causes of Japan's Low Inflation
  • 3.1 Supply Factors
  • 3.2 Demand Factors.
  • 3.3 Monetary Policy.
• 4 Conclusion

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This paper aims to analyze the causes of Japan's low inflation in the 21st century, providing a comprehensive overview of the country's "Lost Decades" and its pioneering use of monetary and fiscal policy measures. It delves into the various factors that have contributed to deflationary pressures, exploring both supply and demand factors. Furthermore, the paper scrutinizes the Bank of Japan's monetary policy, highlighting its successes and shortcomings in addressing deflationary challenges.

• Japan's experience with deflation and its impact on the economy
• The role of supply and demand factors in driving deflationary pressures
• The effectiveness of monetary policy in countering deflation
• The implications of Japan's deflationary episode for economic theory and policy
• The evolution of the Bank of Japan's monetary policy in response to deflation

Zusammenfassung der Kapitel (Chapter Summaries)

• Chapter 1: Introduction: This chapter sets the stage by defining deflation and outlining its potential consequences for economic growth and stability. It highlights the importance of maintaining a slightly positive inflation rate as a safety margin against deflationary risks. The chapter also provides a brief overview of the Japanese economic context and the motivations behind the study.
• Chapter 2: Japan's Struggle with Deflation: This chapter provides a historical overview of Japan's economic challenges in the 21st century, focusing on the aftermath of the asset bubble burst in the 1990s, the subsequent banking crisis, and the "Lost Decades" of slow growth and deflation. It also examines the Bank of Japan's evolving monetary policy approach in response to these challenges.
• Chapter 3: Causes of Japan's Low Inflation: This chapter delves into the various factors that have contributed to Japan's deflationary pressures. It explores both supply and demand factors, such as structural changes in the economy, demographic shifts, and external economic shocks. Additionally, it analyzes the Bank of Japan's use of monetary policy, evaluating its effectiveness and identifying its limitations in addressing deflationary pressures.

Schlüsselwörter (Keywords)

This term paper focuses on key concepts related to Japan's economic landscape in the 21st century, including deflation, monetary policy, demand and supply factors, the "Lost Decades", and the Bank of Japan's strategies in addressing deflationary pressures.

• College: University of Münster
• Grade: 1.3
• Author: Niklas Humann (Author)
• Publication Year: 2022
• Pages: 26
• Catalog Number: V1256943
• ISBN (PDF): 9783346697660
• ISBN (Book): 9783346697677
• Language: English
• Tags: Economics, Monetary, Monetary Policy, Japan, Globalization, Macroeconomics, Inflation, Deflation, Lost Decades, Abenomics, Shinzo Abe, Bank of Japan, Yield Curve Control, Demographic Reversal, Japanese Labor, Yen, Inflation Expectations