A Study On The Efficiency Of Japan's Monetary Policy During The Heisei Recession

Japan's economy had experienced several alternations of rapid economic growth and recession before 1990's. Under previous economic system, Bank of Japan (BOJ) executed monetary policies and achieved successful macro adjustment results, contributing to the once highly successful model of economic growth. Nevertheless, after the burst of 'the Bubble Economy', BOJ had taken a series of extremely loose monetary polices to bring the economy back, yet achieved no obvious results.How efficient were Japan's monetary polices during Heisei recession? What is the major reason that affects the efficiency of monetary policy and how to improve? These three questions are to be discussed in the thesis.The analysis of this paper shows the efficiency of Japan's monetary policy during Heisei recession is in a downward slope. From the macro economic indicators, the inefficiency of monetary policy results from the blocking of monetary transmission system. However, the theories of monetary transmission cannot explain the fact that Japan's extremely loose monetary policies haven't achieved obvious results in such a long period. Based on the analysis of the hiking of Japan's economic institutions post the Second World War, I analyzed the economic behavior of Japan's commercial banks, enterprises and consumers from a prospect of micro institutions, and made up with the point that the reason why Japan's monetary policies were inefficient is the logic of Japan's economic system has changed. Besides, the serious problem of non-performing assets and lagging of structure reform also contribute to this issue.In the long run, the only way out of recession for Japan's economy is to rely on the adjustment of economic structure and innovation of institutions to promote industrial structure and to develop an economy that depends on domestic demands. Therefore, overall reform of the economic structure and straightening out the order of economy systems is the sole way to reconstruct Japan's economy as well as the prerequisite of improving the efficiency of Japan's monetary policies.