Monetary Policy in Japan: A Review of the Heisei Period

This chapter discusses Japan’s monetary policy during the Heisei Period (1989–2019), an era of roughly 30 years that included the boost and bursting of the bubble economyBubble (bubble economy) and the subsequent deflationary period. In addition to a review of unconventional monetary policies that began about 20 years ago, it also will shed light on discipline of monetary policyDiscipline of monetary policy, inflation targetingInflation targeting, and the relationship to fiscal policy. Lastly, it will discuss the independence of the Bank of Japan, recommending that the Bank of JapanBank of Japan (BOJ) demonstrate proactive independence based on its constitutional independence. The present monetary policy, Quantitative and Qualitative Monetary EasingQuantitative-easing policies (QQE), has struggled to achieve the target. This is mainly due to the stagnated growth potential of the economy. Discipline of monetary policyDiscipline of monetary policy is a way that manage monetary policy while making the best use of market mechanism and minimizing the size of central bank asset. Although central banks have traditionally emphasized these disciplines, unconventional monetary policyUnconventional monetary policy could be the process to loosen the discipline of monetary policyDiscipline of monetary policy. Japan is a typical. As an independent agency, central bank is expected to check government economic policies from her standpoint of non-political and longer viewpoint in order to revive the Japanese economy.