A Study On Japan 's New Round Of Quantitative And Relaxed Monetary Policy

In nearly a century’s time since the Great Depression in the1930s,academic research on“money” and “monetary policy” continues to advance. Theory and practice about it constantlybreakthrough and innovate.Researchon the “liquidity trap” and related issues hasalways been whattheory and practice focused on.Aiming at issues including the non-neutral money and the“liquidity trap”, economists and policy makers of U.S., Japan and other countrieslaunched the“quantitative easing monetary policy”, based on the debt-deflation principle, the “financialaccelerator” and other theories.Quantitative easing monetary policy refers to “a way of intervention taken by the centralbank after the implementation of zero or near-zero interest rate policy, in order to increase thesupply of base money and pour plenty of liquidity into the market, through the purchase of bondsand other long-term debt”. The operation strategies of quantitative easing monetary policyincludepolicy commitments, changing the structure of the central bank’s balance sheet and expanding thescale of the central bank’s balance sheet. The goals of quantitative easing monetary policyincludeovercoming deflation, stabilizing the price level, restoring the function of credit system,maintaining financial system stability, stimulating investment and consumption and restoringeconomic growth.Its main transmission mechanisms mainly include the ones stimulatingconsumption, investment and exports as a part of GDP.Japan is the first country using quantitative easing monetary policy in the world. In2001, inorder to reverse the situation of deflation and recession since the1990s in Japan, in the case of thezero interest rate policy lapsing, the Bank of Japan decided to implement quantitative easingmonetary policy.This policy continued until2006and had a certain boosting effect on the Japaneseeconomy. In the global financial crisis in2008,the Japanese economy was mauled heavily, whichmakes the Bank of Japan once again resorting to quantitative easing monetary policyin2010. Afterthe Japanese Prime Minister Shinzo Abe took office in December2012, a series of bold,aggressive economic stimulus called “Abenomics” were introduced, including an unprecedentedlarge scale quantitative easing.Theimplementation ofJapan’snew round of quantitative easingmonetary policy has drawn attention all around the world, as well as providing new material forresearch on quantify easing monetary policy theories.Based on the existing theoretical system,a systematic research is conductedin this paper onthe effectiveness and the transmission mechanism ofJapan’snew round of quantitative easingmonetary policy. It’s found in the research that Japan’s new round of quantitative easing monetarypolicy is effective on overcoming deflation and stabilizing price level. While its effect on restoringfunction of the credit system, maintaining financial system stability,stimulatinginvestment and consumption, recoveringeconomic growth and other aspects is not obvious.Meanwhile, in the implementation ofJapan’snew round of quantitative easing monetary policy,because of the condition of private sector’s and banking institutions’ balance sheet and thestructure of Japan’s economy which mainly relies on imports of raw materials, some of thetransmission mechanisms are of no effect.Based on the research above, the conclusion of this paper is that the effect of quantitativeeasing monetary policy is limited if it’s implemented solely as a policy tool. The Japanesegovernment must implement monetary policy together with fiscal policy and structural reformpolicies in order to effectively boost the Japanese economy.Finally,analysis and forecasting on thetrends and potential risks of the Japanese economy in the future phases.