Japan step up stimulus measures

Japanese Stimulus Fund

The self-imposed embargo exercised by Japan's lenders has threatened to bury the nation's economy, after years of aggressive encouragement from the government for its people to borrow lots of money in order to keep driving forward Japan's booming economy.

But this cheap borrowing from a captive bond market with an insatiable appetite for deficit spending, the world's second-largest economy began to hit problems. Now Japan's central bank has increased a stimulus measure aimed at encouraging financial institutions to lend more once again.

The amount of cheap short-term loans it is offering banks has now doubled to 20 trillion yen. The scheme, which lends money at a rate of 0.1 percent, was introduced in December to try to tackle the deflation which is threatening Japan's economic recovery, as told by the BBC.

Quite incredibly, despite the problems caused by cheap borrowing, the BOJ also voted to hold interest rates at 0.1 percent - the level at which they have been since December 2008.

In last year's final quarter the Japanese economy failed to grow at the rates predicted by government analysts, prompting criticism of the central bank and its policies. The most concerning thing for the Japanese economy is that it is the smaller firms, who employ a significant chunk of the nation's workforce, that have stopped from borrowing.

That downward revision increased pressure on the Bank of Japan to ease monetary policy.

Deflation has long been a problem Japan has struggled to cope with, because such a situation makes consumers and businesses delay purchasing goods and services in the hope prices will keep falling. The 1990s are often referred to as Japan's "lost decade" because of its 10-year struggle with falling prices.

It's make or break for the Japanese government as forthcoming policy changes will determine whether the country can escape a potential debt trap.

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Daniel Jones

Daniel is a Politics and Philosophy graduate from Cardiff University where he also worked as a section editor on the award winning student newspaper. After university he joined an IT support company where he was a B2B online writer. He loves anything to do with sport and joined GDS in July 2009.

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