Japanese Monetary Policy
A history of Japanese monetary policy.
Contents
History
TODO: older history!
Japan was largely unaffected by the Great Depression. This is largely accredited to Takahashi's plans; he abandoned the gold standard and applied expansionary monetary and fiscal policies.
Following World War 2, GHQ worked quickly to contain hyperinflation. Multiple currencies were issued for disparate use: A円 for U.S. military trade, B円 for civilian trade. Per-island exchange rates were set. The U.S. military gradually phased out use of A円, leaving B円 as the official currency. In 1949, GHQ set a fixed exchange rate of $1=360円.
That rate remained until 1971. In the new floating exchange rate regime, Volckner's tight monetary policy and Reagan's expansive fiscal policy caused international finance shocks. These are a major contributor towards the stagflation that Japan has suffered since.
Rapid depreciation was finally brought under control by a pair of G7 joint agreements (Plaza Accord in 1985, Louvre Accord in 1987). The government nonetheless pursued expansionist monetary policy, leading to a zero interest rate. In 2019, Abe experimented with a negative interest rate.
The personal (household) savings rate also rose in the 1970s, and has never meaningfully returned to older levels. There are two likely explanations for this:
In Japan, families are expected to bear the fiscal burden of both their children and their elderly. Multi-generational households are commonplace. As the Japanese population continues to shrink and age, the expected private costs for welfare are also rising, so households are spreading the burden by saving in the short-term.