Japan easing its monetary policy

Hello all! A couple posts ago, I discussed monetary policy within Japan, and what the bank notes represent. I discussed that the monetary policy is much like the United States, yet somewhat different. I've also discussed the current economic status in Japan. I was browsing the Internet looking for topics for today's post, and I stumbled across an interesting current event that ties a couple blog posts ago with this post from the New York Times.

The New York Times reports that the central bank of Japan is increasing the loan programs for banks in order to improved their "deflation-plagued" economy. Other countries in the global economy, including the United States, have been putting out stimulus packages with hopes to stimulate the economy, so that those countries can get out of the world-wide recession. However, Japan wants to consider flooding the country with cash in order to stimulate the economy. This would be a logical move; however, with its debt, Japan is very cautious at this point in time. The country really doesn't have the money to stimulate its economy. However, on March 17, The Bank of Japan agreed to double the loan program in order to "increase the liquidity in the Japanese economy". Dictionary.com defines liquidity as "available cash or the capacity to obtain it on demand". Therefore, since the liquidity is low, the loans will increase the liquidity hopefully to 20 trillion yen, which is approximately $222 billion dollars. The New York Times reports that Japan's action will allow financial institutions to borrow up to 20 trillion yen in three months with 0.1 interest rate. The New York Times also reports that the Japan officials hope to beat deflation by the end of this year.

My opinion on this matter is that they should pump this money into the monetary system. People are not spending much in a deflated economy, when prices are low, because they know that the price will only get cheaper and cheaper. In essence, the average consumer of Japan is "cheap". Even though Japan really doesn't have the funds for such an operation, it seems logical that, in the end, the "money-pumping" will pay off. That is my opinion; however, the reader's opinion may differ. The concept of the stimulus packages is a controversial issue, even in the United States. Some people think it's a good idea, because it's free money that they can spend on what they want. Other people think it's a bad idea, because they feel they will end up paying it back later. In the long term, this idea may not be such a good idea, because there will have to be somewhere where Japan gets all that money, and they will pay it back later. However, in the short term, I believe that this is absolutely necessary to beat deflation. Thank you all, and have a wonderful week.

Sources:

Tabuchi, H. (2010). As deflation fears persist, Japan eases monetary policy. The New York Times. Accessed on March 20, 2010 from NYTIMES.COM

Referenced the definition of liquidity from DICTIONARY.COM