Japanese Monetary Policy Again

At our last meeting of the Shadow Open Market Committee, in April, I discussed Japanese monetary policy. Specifically, I argued (i) that it has been overly restrictive for almost a decade, (ii) that the Bank of Japan’s policy changes of March 19, 2001, are welcome but probably insufficient, (iii) that a desirable strategy would be to create new base money more rapidly by unsterilized purchases of foreign exchange, and (iv) that such a policy would not be detrimental to the U.S. or Asian economies and should not be opposed by the United States. In addition, some incomplete and highly preliminary estimates of the effects of such a policy were offered. Since that time, the Japanese economy has moved toward outright recession and calls for additional stimulus from the Bank of Japan (BOJ) have become more prominent.