Decline of oil prices and the negative interest rate policy in Japan

Naoyuki Yoshino, Farhad Taghi Zadeh Hesary, Nour Tawk

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

In April 2013, the Bank of Japan (BOJ) introduced an inflation target of 2% with the aim of overcoming deflation and achieving sustainable economic growth. But due to lower international oil prices it was unable to achieve this target and was forced to take further measures. Hence, in February 2016, the BOJ adopted a negative interest rate policy by massively increasing the money supply through the purchase of long-term Japanese government bonds (JGB). The BOJ had previously only purchased short-term government bonds, a policy that flattened the yield curve of JGBs. On the one hand, banks reduced the number of government bonds they purchased because short-term bond yields had become negative. The interest rates of long-term government bond up to 15 years even became negative. On the other hand, bank loans to corporates did not increase, due to Japanese economy’s vertical investment–saving (IS) curve. The purpose of this paper is to show that the monetary policy through implementation of the zero interest rate and more recently through the negative interest rate could not help the Japanese economy to recover from the long-lasting recession and these are not the remedy. It is of key importance to make the IS curve downward rather than vertical. That means the rate of return on investment must be positive and companies must be willing to invest even if interest rates are set too low. Japan’s long-term recession is due to structural problems that cannot be solved by its current monetary policy. The paper also explains why the BOJ has to reduce its 2% inflation target in the present low oil price era.

Original languageEnglish
Pages (from-to)233-250
Number of pages18
JournalEconomic and Political Studies
Volume5
Issue number2
DOIs
Publication statusPublished - 2017 Apr 3
Externally publishedYes

Fingerprint

oil price
interest rate
government bonds
bank
Japan
monetary policy
recession
inflation
money supply
deflation
structural problem
loan
remedies
purchase
Bank of Japan
Interest rate policy
Government bonds
Oil prices
Interest rates
economic growth

Keywords

  • Abenomics
  • Japanese economy
  • Negative interest rate policy
  • oil price

ASJC Scopus subject areas

  • Economics and Econometrics
  • Sociology and Political Science
  • Political Science and International Relations

Cite this

Decline of oil prices and the negative interest rate policy in Japan. / Yoshino, Naoyuki; Taghi Zadeh Hesary, Farhad; Tawk, Nour.

In: Economic and Political Studies, Vol. 5, No. 2, 03.04.2017, p. 233-250.

Research output: Contribution to journalArticle

@article{0811718cd69e4cc99ea96d9801d90f9c,
title = "Decline of oil prices and the negative interest rate policy in Japan",
abstract = "In April 2013, the Bank of Japan (BOJ) introduced an inflation target of 2{\%} with the aim of overcoming deflation and achieving sustainable economic growth. But due to lower international oil prices it was unable to achieve this target and was forced to take further measures. Hence, in February 2016, the BOJ adopted a negative interest rate policy by massively increasing the money supply through the purchase of long-term Japanese government bonds (JGB). The BOJ had previously only purchased short-term government bonds, a policy that flattened the yield curve of JGBs. On the one hand, banks reduced the number of government bonds they purchased because short-term bond yields had become negative. The interest rates of long-term government bond up to 15 years even became negative. On the other hand, bank loans to corporates did not increase, due to Japanese economy’s vertical investment–saving (IS) curve. The purpose of this paper is to show that the monetary policy through implementation of the zero interest rate and more recently through the negative interest rate could not help the Japanese economy to recover from the long-lasting recession and these are not the remedy. It is of key importance to make the IS curve downward rather than vertical. That means the rate of return on investment must be positive and companies must be willing to invest even if interest rates are set too low. Japan’s long-term recession is due to structural problems that cannot be solved by its current monetary policy. The paper also explains why the BOJ has to reduce its 2{\%} inflation target in the present low oil price era.",
keywords = "Abenomics, Japanese economy, Negative interest rate policy, oil price",
author = "Naoyuki Yoshino and {Taghi Zadeh Hesary}, Farhad and Nour Tawk",
year = "2017",
month = "4",
day = "3",
doi = "10.1080/20954816.2017.1310798",
language = "English",
volume = "5",
pages = "233--250",
journal = "Economic and Political Studies",
issn = "2095-4816",
publisher = "Routledge",
number = "2",

}

TY - JOUR

T1 - Decline of oil prices and the negative interest rate policy in Japan

AU - Yoshino, Naoyuki

AU - Taghi Zadeh Hesary, Farhad

AU - Tawk, Nour

PY - 2017/4/3

Y1 - 2017/4/3

N2 - In April 2013, the Bank of Japan (BOJ) introduced an inflation target of 2% with the aim of overcoming deflation and achieving sustainable economic growth. But due to lower international oil prices it was unable to achieve this target and was forced to take further measures. Hence, in February 2016, the BOJ adopted a negative interest rate policy by massively increasing the money supply through the purchase of long-term Japanese government bonds (JGB). The BOJ had previously only purchased short-term government bonds, a policy that flattened the yield curve of JGBs. On the one hand, banks reduced the number of government bonds they purchased because short-term bond yields had become negative. The interest rates of long-term government bond up to 15 years even became negative. On the other hand, bank loans to corporates did not increase, due to Japanese economy’s vertical investment–saving (IS) curve. The purpose of this paper is to show that the monetary policy through implementation of the zero interest rate and more recently through the negative interest rate could not help the Japanese economy to recover from the long-lasting recession and these are not the remedy. It is of key importance to make the IS curve downward rather than vertical. That means the rate of return on investment must be positive and companies must be willing to invest even if interest rates are set too low. Japan’s long-term recession is due to structural problems that cannot be solved by its current monetary policy. The paper also explains why the BOJ has to reduce its 2% inflation target in the present low oil price era.

AB - In April 2013, the Bank of Japan (BOJ) introduced an inflation target of 2% with the aim of overcoming deflation and achieving sustainable economic growth. But due to lower international oil prices it was unable to achieve this target and was forced to take further measures. Hence, in February 2016, the BOJ adopted a negative interest rate policy by massively increasing the money supply through the purchase of long-term Japanese government bonds (JGB). The BOJ had previously only purchased short-term government bonds, a policy that flattened the yield curve of JGBs. On the one hand, banks reduced the number of government bonds they purchased because short-term bond yields had become negative. The interest rates of long-term government bond up to 15 years even became negative. On the other hand, bank loans to corporates did not increase, due to Japanese economy’s vertical investment–saving (IS) curve. The purpose of this paper is to show that the monetary policy through implementation of the zero interest rate and more recently through the negative interest rate could not help the Japanese economy to recover from the long-lasting recession and these are not the remedy. It is of key importance to make the IS curve downward rather than vertical. That means the rate of return on investment must be positive and companies must be willing to invest even if interest rates are set too low. Japan’s long-term recession is due to structural problems that cannot be solved by its current monetary policy. The paper also explains why the BOJ has to reduce its 2% inflation target in the present low oil price era.

KW - Abenomics

KW - Japanese economy

KW - Negative interest rate policy

KW - oil price

UR - http://www.scopus.com/inward/record.url?scp=85053364805&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85053364805&partnerID=8YFLogxK

U2 - 10.1080/20954816.2017.1310798

DO - 10.1080/20954816.2017.1310798

M3 - Article

VL - 5

SP - 233

EP - 250

JO - Economic and Political Studies

JF - Economic and Political Studies

SN - 2095-4816

IS - 2

ER -