Deflation Japan And The Bank Of Japan Essay - 1606 Words

Deflation refers to a situation where there is a reduction in the general levels of prices of goods and services. It takes place when the rate of inflation falls below 0 percent in that case the inflation rate is negative. Inflation decreases the real value of money while deflation raises the real value of money and this enables a person to be able to purchase more goods and services with the same amount of money than before (Hutchison et al, 2006). Japan as a country has really suffered from a long-lasting but mild deflation which started in the mid 1990s. Both the government and the bank of Japan tried to get rid of it by decreasing the rates of interests and ‘quantitative easing’. However, they did not create a constant increase in the broad money and so the deflation persisted .this paper discusses the deflation worries in Japan and in the bank of Japan in terms of equity and financial markets (Mikuni et al, 2003). The Bank of Japan’s (BOJ) near doubling the p urchase of shares belonging to Tokyo is making the investors to have worries on the central bank that it will dominate the financial markets , which will cause price distortions as it goes on greasing the economy. The Bank of Japan’s purchasing spree will make it harder for the investors to sift those companies which are good and those which are bad, and comes up with a lot of other problems such as making trading of equities to be more speculative, misallocation of capital and decreasing incentives for theShow MoreRelatedCase Study1380 Words   |  6 Pagescase we get an entire scenario about how the Japan deflation set in, what were the effects of the deflation on the economy as well as on the people of Japan. It also mentions about the various reasons because of which Japan was in such a tight grip of Deflation, Depression, Demographics and Debts Guides us through the steps taken by the government in order to curb this deflation. 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