Need an argumentative essay on The Monetary Policy in Japan. Needs to be 2 pages. Please no plagiarism.
The trade imbalance and huge trade deficits of Japan’s trade with US, UK, France and West Germany caused them to forge an agreement to maintain a lower discount rate. To fortify this, US Congress took the stance in the increasing Japanese trade surplus to retaliate in trade measures. The cooperative agreement of the nations lowered the interest rate to 5.2 to Japan and 7.2 to US, a down from its former 10 per cent rate.
Other policies and trade agreement as in Louvere Agreement in 1987 further reduced the interest rate in Japan to 2.5 percent, and was done to avoid world depression. Intervention from the Central Bank of West Germany returned the monetary policy to neutral level of 4.5 per cent. BOJ had to take an easy monetary policy because at that time of 1987, the dollar was weak against the yen, and any further increase in interest rate would further depress the US economy.
A period of easy funds followed, and banks gave out aggressive loans to large firms and to households with the belief that the “good times” will last longer. Along with this is the rapid increase of stock prices and asset prices, followed by the increase in interest rates from 2.5 percent to 3.75 percent with asset prices continuously increasing.
The period 1990-1993 started the asset price decline when the interest rate was increased to 6.0 by the CB Governor to avoid inflation caused by the Gulf War. In the mid of 1992 asset prices plummeted to a record low bringing the discount rate from 6.0 percent to 2.5 percent. In 1994 several adverse factors affected the economic policies further prompting the CB to lower discount rates to 0.5 in 1995.
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