Can Raising Japan’s Minimum Wage Accelerate Wage Growth?

By Luc Everaert and Giovanni Ganelli

Version in 日本語 (Japanese)

Japan’s minimum wage is 798 JPY ($6.52) per hour, lower than many other advanced countries, including the United States, and among the lowest relative to the average wage (see chart). For a country that needs consumers to boost spending to pull the economy out of 15 years of deflation and reinvigorate growth, a hike in wages across the board can go a long way. Continue reading “Can Raising Japan’s Minimum Wage Accelerate Wage Growth?” »

Unpicking the Riddle of Sluggish Investment by Japanese Firms

By Joong Shik Kang and Shi Piao

(version in 日本語)

Japanese-brand cars have become everyday, household items in the United States, and it’s hard to drive in the country without seeing one on the roads. These cars may be manufactured by Japanese firms, but about 70 percent of these vehicles are actually produced in North America. Globally, in 2014, about two-thirds of Japanese cars were produced on assembly lines outside of that country. Despite the increase in overseas demand for Japanese vehicles, this hasn’t been mirrored by an expansion in investment, and the building of factories in Japan to meet that demand.

Against this background, our IMF Working Paper looks at possible reasons for this sluggish recovery of corporate investment in Japan, focusing on the role of Japanese firms overseas.

Continue reading “Unpicking the Riddle of Sluggish Investment by Japanese Firms” »

Multi-Track Monetary Policies in Advanced Economies: What This Means for Asia

By James Daniel and Rachel van Elkan

Since mid-2014, diversity and divergence—applying to countries’ economic situations, policies and performance—have dominated global economic discussions. Differing economic performance in major advanced countries has led to divergent monetary policies.

Both the Bank of Japan and the European Central Bank have started significant expansions of their balance sheets, while the U.S. Federal Reserve has ended its bond-buying program and is expected to start raising rates. This has had many effects, in particular, contributing to a sharp depreciation of the Yen and the Euro against the U.S. dollar (see chart 1).

Continue reading “Multi-Track Monetary Policies in Advanced Economies: What This Means for Asia” »

Financial Risks Rise Amid Uneven Global Economic Recovery

GFSR

By José Viñals

(Versions in عربي and Español)

The three main messages from this Global Financial Stability Report are:

  1. Risks to the global financial system have risen since October and have rotated to parts of the financial system where they are harder to assess and harder to address.
  2. Advanced economies need to enhance the traction of monetary policies to achieve their goals, while managing undesirable financial side effects of low interest rates.
  3. To withstand the global crosscurrents of lower oil prices, rising U.S. policy rates, and a stronger dollar, emerging markets must increase the resilience of their financial systems by addressing domestic vulnerabilities.

Let me now discuss these findings in detail. 

Continue reading “Financial Risks Rise Amid Uneven Global Economic Recovery” »

Can Abenomics Succeed? Overcoming the Legacy of the Lost Decades

Changyong RheeBy Changyong Rhee

(Versions in 日本語)

Abenomics can succeed, despite recent setbacks to growth and inflation, in revitalizing Japan by making steadfast progress on all three of its arrows equally and simultaneously, as we show in our new book. This is also essential to avoid an undue weakening of the yen and ensure positive spillovers to Japan’s neighbors, its region, and the global economy.

The Legacy: Structural Changes During the Lost Decades

Most Japan followers will be familiar with the following striking statistic: in 2013, Japan’s level of nominal GDP was about 6 percent below its mid 1990s level. During this period, three important structural changes have been a brake on growth and efforts to get out of deflation: Continue reading “Can Abenomics Succeed? Overcoming the Legacy of the Lost Decades” »

Building a Camaraderie of Central Bankers: How Monetary Policymakers in the Caucasus and Central Asia Can Learn From Each Other

Min ZhuBy Min Zhu

(Versions in 中文Русский)

The world’s central bankers are certainly in the news these days. Not a week goes by without the Fed, the European Central Bank or the Bank of Japan taking big and often unprecedented actions to fight deflation, preserve financial stability, or address mediocre growth. We tend to forget, however, that these are not the only central banks that are struggling to adapt their policies to changing circumstances in our connected world.

Take the Caucasus and Central Asia — Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan. Central banking in these former Soviet republics rarely makes international headlines. But figuring out how best to design and run monetary policy is no less a challenge than in the United States or the euro zone.

Continue reading “Building a Camaraderie of Central Bankers: How Monetary Policymakers in the Caucasus and Central Asia Can Learn From Each Other” »

Structural Reforms Can Help Japan’s Post-Consumption Tax Blues

Stephan DanningerBy Stephan Danninger 

(Versions in 日本語)

Japan’s GDP declined by almost 7 percent in the second quarter, more than many had forecast including us here at the IMF.  Many cite the increase in the sales tax this April for this decline.  But that is not the full story.

Yes, it is true that consumer responses to major tax increases are difficult to predict, and large spending swings are not unusual. We see this pattern in many countries (see chart) including Germany’s 2007 VAT increase, which had a short-lived impact.

Continue reading “Structural Reforms Can Help Japan’s Post-Consumption Tax Blues” »

Euro Area – Q&A on QE

By Reza Moghadam and Ranjit Teja 

As inflation has sunk in the euro area, talk of quantitative easing (QE)—and misgivings about it—have soared. Some think QE is not needed; others that it would not work; and yet others that it only creates asset bubbles and may even be “illegal.” In its latest report on the euro area, the IMF assesses recent policy action positively but adds that “… if inflation remains too low, the ECB should consider a substantial balance sheet expansion, including through asset purchases.” Given all the reservations, would the juice be worth the squeeze?

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Japan’s Abenomics: Time to Take Stock

ASinghBy Anoop Singh

Almost one year ago, the term Abenomics first surfaced in Japan. The idea of a coordinated policy effort to revive Japan’s economy and end deflation seemed a bold idea, but also a long-shot. Back in February, several young investment bankers told me that ending deflation within the next few years stood at most, a 20 percent chance.  They noted that they had never experienced rising prices in their lifetimes. By June they had upped the chances of success to 40 percent. With Abenomics approaching the one-year mark, is the new strategy working?

Lot of policy action

The year started with a flurry of new policy initiatives: in January, the Bank of Japan (BoJ) adopted a 2 percent inflation target, followed by new fiscal stimulus, and a decision to join  negotiations over the  Trans-Pacific Partnership (TPP), a proposal for a free trade agreement spanning countries from Australia, Brunei, to Chile, Canada, and the U.S.  Shortly after,  Haruhiko Kuroda took the helm at the Bank of Japan and introduced  Quantitative and Qualitative Monetary Easing—an aggressive plan to reach 2 percent inflation in about 2 years mainly through large-scale bond purchases. Just, a few days ago, the government agreed to go ahead with the consumption tax increase in 2014 and announced further fiscal stimulus to soften the growth impact. Discussions on growth reforms are next on the agenda, with a special Diet session starting this month. Plenty of action, but has this whirlwind of activity paid off?
Continue reading “Japan’s Abenomics: Time to Take Stock” »

Japan’s Three Arrows―Will They Fly?

Jerry SchiffBy Jerry Schiff 

(Versions in 日本語l and 中文)

Discussions in Japan of the “three arrows” of Abenomics—the three major components of Prime Minister Shinzo Abe’s economic plan to reflate the economy—are rampant among its citizens as well as economists, journalists and policy-makers worldwide. Even J-Pop groups are recording paeans to the economic policy named after the newly-elected premier.  It is clear that "Abenomics" has been a remarkable branding success. But will it equally be an economic triumph?

We think it can be, and initial signs are positive.  But such success is not assured. It will require difficult decisions as the country moves into largely uncharted territory. And much will depend on changing expectations within the country.

Continue reading “Japan’s Three Arrows―Will They Fly?” »

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