Date of Original Version
World Economics, Volume 3, Number 3, 2002, pages 85 - 103
Abstract or Table of Contents
Japan has gone from very successful policies that promoted growth without inflation to a long period of slow growth, recessions and deflation. The Bank of Japan’s policies are a major reason for deflation. Although the Bank has purchased foreign exchange, it counteracts the inflationary effects of its purchases via sterilization. This forces deflation to continue. Currently, there is a ‘dialogue of the deaf’. The government wants faster growth but does not reform the banking system; the Bank makes bank reform a condition for ending deflationary policies.