Why does Japan need to boost domestic consumption?

Over the past two decades Japan has relied on the success of its export sector, and on debt-financed government spending, to drive its economic growth.

However, a slowdown in key markets such as the US and the eurozone has hurt the export sector and impacted its overall economy.

Meanwhile, increased competition from Chinese and South Korean firms has also dented growth, in part thanks to the yen, which has strengthened significantly since the 2008 financial crisis.

Japan's exports have now fallen for six straight months, and many analysts believe that the sector may continue to remain under pressure in the near term.

As a result, Japan has been trying to boost domestic consumption to offset the decline in foreign sales and ensure a sustained long-term growth of its economy.

I. Vocabulary:

on-and-off deflation – периодическая дефляция

Bank of Japan, BOJ – Банк Японии (центральный банк страны)

draw a line under … - подвести черту под …

double Japan’s inflation target – удвоить целевой показатель инфляции

в Японии

turn around – улучшиться, измениться к лучшему

battle deflation – бороться с дефляцией

bargain hunters – покупатель, ищущий выгодные сделки

ageing households – стареющие домовладельцы

fixed pension incomes – доходы в виде фиксированной пенсии

consumers – потребители, покупатели

put off purchases – откладывать покупки

eat into the value of homes – сокращать стоимость домов

increase the cost of investment credit – увеличивать стоимость долгосрочных кредитов

reduce profits – сокращать прибыли

wage packets зарплаты

volume of output – объем производства

offset – возмещать, компенсировать

hurdle – препятствие

boost domestic consumption – увеличивать внутреннее потребление

onus – ответственность, бремя

create unlimited new yen – создать неограниченное количество новых иен

inject yen into the financial system – накачать финансовую систему иенами

maintain a flexible monetary policy – проводить гибкую денежно-кредитную политику

set a deadline – установить крайний срок

stoke inflation – подогревать инфляцию

debt-financed government spending – госрасходы, финансированные за счет кредитования

drive economic growth – стимулировать экономический рост

slowdown – замедление

hurt the export sector – нанести ущерб экспортному сектору

impact the overall economy – сказаться на всей экономике

dent growth – снизить рост

the yen strengthened – иена укрепилась

ensure a sustained long- term growth of the economy – обеспечить устойчивый долгосрочный рост экономики

II. Answer the following questions using as many vocabulary items as possible:

1. What is deflation?

2. What impact does deflation have on the economy of Japan?

3. Can Japan achieve its inflation target?

4. Why does Japan need to boost its domestic consumption?

III. Give a short talk on the difference between inflation and deflation. Supply examples of countries with high inflation rates.

QUANTITATIVE EASING

Since the global financial crisis, both the Bank of England and the Federal Reserve have used the policy of quantitative easing (QE) to try to revive consumer spending and economic growth.

In the UK, the Bank of England began its "asset purchases" in January 2009.

The Bank has so far committed a total of £375bn to QE, while in September the Fed said it would spend a further $40bn (£25bn) per month. This was on top of the $2.3tn the Fed had already put into QE since 2008.

What is quantitative easing?

Usually, central banks try to raise the amount of lending and activity in the economy indirectly, by cutting interest rates.

Lower interest rates encourage people to spend, not save. But when interest rates can go no lower, a central bank's only option is to pump money into the economy directly. That is quantitative easing (QE).

The way the central bank does this is by buying assets - usually government bonds - using money it has simply created out of thin air.

The institutions selling those bonds (either commercial banks or other financial businesses such as insurance companies) will then have "new" money in their accounts, which then boosts the money supply.

Is this printing money?

These days the Bank of England does not have to literally print money - it is all done electronically.

However, economists still argue that QE is the same principle as printing money as it is a deliberate expansion of the central bank's balance sheet and the monetary base.

How does it work?

Under QE a central bank purchases government bonds from private sector companies or institutions, typically insurance companies, pension funds and High Street banks.

This increased demand for the government bonds pushes up their value, thereby making them more expensive to buy, and so they become a less attractive investment.

This means that the companies who sold the bonds may use the proceeds to invest in other companies or lend to individuals, rather than buying any more of the bonds.

The hope is that with banks, pension funds and insurance firms now more enthusiastic about lending to companies and individuals, the interest rates they charge fall, so more money is spent and the economy is boosted.

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