Although Japan successfully navigated its way through the fiscal year end on March 31 without a crisis, the banking system remained in sever condition. Due to the bad loans, the weak Yen currency, downward pressure from export and inventories , fatigued and weak domestic demand, economic recession…… The prices would go on declining.
It’s a good idea to support the stock market first. This is the practice of betting on a falling market in which a seller sells shares they do not yet own in the expectation they will be able to buy them back more cheaply later on. Driving up the stock market is intended to support the banks. Japan’s banks must write down the value of their portfolios to current market values. They BoJ has taken such action several times in recent months, with little impact. In addition, the banks should keep loaning in order to strengthen the currency liquidity, also strengthen the credit and adopt a more forward-looking approach to loan classification and provisioning. Anyway, just be more careful than before on loaning to avoid bad debts.
The most common way to deal with deflation injecting money into the market . So the more we have , the higher price will be strengthen. But many people are concerning about the currency devaluation caused by the expansion of the amount of money. Let’s see what Japanese had done. They had devalued their currency. Due to the devaluation, people from abroad are much willing to buy the “Made in Japan”. At the beginning , there may be a trade deficit. Once the change of quantity overwhelms the change of price, trade surplus will appear. So in long-term, this will be a successful strategy to take in money for the use of curbing deflation.
Structural problems lie at the heart of Japan’s economic difficulties. For more than a decade Japan has adjusted too slowly to the forces of globalization, lagging behind in productivity growth. The country must remove the obstacles to efficiency in the domestic sectors of the economy. They also need to introduce measures to strengthen the regulatory structure improve corporate governance, increase labor market flexibility. Such policies will be important to generate new investment and employment opportunities, and raise productivity growth over the medium term.
From deflation to structural reforms, none of them will be easy to implement, but bold measures are needed to return the economy to strong, sustained growth. The past decade has proved that the risk had been delayed. Now is the time to act.