Ar#cle Brief Date Wri/en: Sep-3-2024
Source: Inagaki, Kana. "Bank of Japan Ends Era of Nega>ve Interest Rates." Ft.com, 19 Mar.
2024, www.I.com/content/67f51286-4e3f-465e-a780-2fe8ea0f4246. Accessed 3 Sept. 2024.
Concept: Interven>on
Diagrams: AD/AS
Brief Summary of Issue: AIer years of using nega>ve interest rates to s>mulate the Japanese
economy and combat defla>on, the Bank of Japan (BOJ) has shiIed its monetary policy by
increasing its benchmark interest rate from a nega>ve -0.1% to “a range of about zero to 0.1
percent”. By normalizing its monetary policy, BOJ aims to stabilize infla>on rates at its 2% target,
reflec>ng their commitment to achieve economic stability.
Concept Linkages: Interven>on refers to any ac>on carried out by the government in the
market to influence economic outcomes. During Japan’s defla>onary era, nega>ve interest rates
were implemented to “encourage banks to lend more in order to generate spending and contain
the risks of a global economic slowdown.” However, aIer years of implementa>on, Japan was
experiencing infla>onary pressures. In response, the government intervened in the financial
markets by increasing interest rates, with the goal of curbing infla>onary pressures by slowing
down investments and preven>ng excessive borrowing.
Applica#on of Concepts: For the past decade, Japan's nega>ve interest rate policy has
dras>cally increased the economy's aggregate demand, as seen in Figure 1. With borrowing
costs close to zero and negligible returns on savings, consumers and businesses were
encouraged to spend and invest, boos>ng consump>on (C) and investment (I), causing AD1 to
shiI rightward to AD2, crea>ng a demand-pull infla>on as price level increased from PL0 to PL1.
Addi>onally, Japan's reliance on imported energy made it vulnerable to rising global prices. The
rise in "imported energy and food prices" raised produc>on costs for businesses, shiIing SRAS1
leIward to SRAS2, causing cost-push infla>on, and further increasing the price level from PL1
toward PL2.
Source: Inagaki, Kana. "Bank of Japan Ends Era of Nega>ve Interest Rates." Ft.com, 19 Mar.
2024, www.I.com/content/67f51286-4e3f-465e-a780-2fe8ea0f4246. Accessed 3 Sept. 2024.
Concept: Interven>on
Diagrams: AD/AS
Brief Summary of Issue: AIer years of using nega>ve interest rates to s>mulate the Japanese
economy and combat defla>on, the Bank of Japan (BOJ) has shiIed its monetary policy by
increasing its benchmark interest rate from a nega>ve -0.1% to “a range of about zero to 0.1
percent”. By normalizing its monetary policy, BOJ aims to stabilize infla>on rates at its 2% target,
reflec>ng their commitment to achieve economic stability.
Concept Linkages: Interven>on refers to any ac>on carried out by the government in the
market to influence economic outcomes. During Japan’s defla>onary era, nega>ve interest rates
were implemented to “encourage banks to lend more in order to generate spending and contain
the risks of a global economic slowdown.” However, aIer years of implementa>on, Japan was
experiencing infla>onary pressures. In response, the government intervened in the financial
markets by increasing interest rates, with the goal of curbing infla>onary pressures by slowing
down investments and preven>ng excessive borrowing.
Applica#on of Concepts: For the past decade, Japan's nega>ve interest rate policy has
dras>cally increased the economy's aggregate demand, as seen in Figure 1. With borrowing
costs close to zero and negligible returns on savings, consumers and businesses were
encouraged to spend and invest, boos>ng consump>on (C) and investment (I), causing AD1 to
shiI rightward to AD2, crea>ng a demand-pull infla>on as price level increased from PL0 to PL1.
Addi>onally, Japan's reliance on imported energy made it vulnerable to rising global prices. The
rise in "imported energy and food prices" raised produc>on costs for businesses, shiIing SRAS1
leIward to SRAS2, causing cost-push infla>on, and further increasing the price level from PL1
toward PL2.
