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When Kazuo Ueda took the reins as governor of the Bank of Japan (BOJ) in April 2023, he signaled that he would continue the ultra-loose monetary policy that had characterized Japan’s central bank for over a decade. But in 2023 Ueda faced strikingly different macroeconomic conditions than those of his predecessors, including inflation above the BOJ’s target. This case discusses the initial rationale behind “Abenomics”—former Prime Minister Shinzō Abe’s three-pronged approach to stimulating Japan’s economy — in the context of Japan’s economic performance since the 1980s. In the case, Ueda must decide whether economic developments as of mid-2023 warrant a new direction for monetary policy in Japan.
Examine the determinants of economic growth, including production factors (technology, labor, capital) and aggregate demand factors. Evaluate the effects of Abenomics—fiscal policy, monetary policy, and structural reforms—on Japan’s recovery from the Great Recession. Illustrate the challenges faced by monetary authorities in a low-interest-rate environment (optional). Illustrate the challenges faced by fiscal authorities in the face of high public debt levels.