Week 7 Blog

Hello, this week I will be covering the Bank of Japans (The Japanese Central Bank) response to the Covid-19 Pandemic. The BOJ used what I would consider a four pronged approach in tackling the impacts of Covid-19 Pandemic. The four key strategies they used were a loan program similar to the US PPP program to ensure businesses remained solvent, a bond purchasing program to free up money in the Japanese economy, currency purchases to ensure price stabilization, and the mass purchases of ETFs covering the Tokyo Stock Exchange to help maintain stock price stability.

Japan’s loan program far outspent the United States when you compare for relative percent of gdp. The American PPP program loaned out 857.92 Billion compared to a 21.02 Trillion GDP about 4% of US GDP. The European Central Bank’s loan program landed at about 12% of Eurozone GDP, the BOJs program ended up at 18% of GDP. The Bond purchases that occurred regularly after the pandemic were in the hundreds of billions of Yen, they helped to free up money in the Japanese economy. Bonds typically have long maturity periods and by outright purchasing them the Japanese government put more currency into the economy helping to counter the slowed down economy.

 The BOJ additionally purchased $475 Billion worth of ETFs in the Tokyo Stock Exchange which in the midst of an unprecedented economic event helped to stabilize stock prices and lower public concern, this is a move which is as equally unprecedented as the pandemic which preceded it. The Federal Reserve took similar action but only $8.7 Billion dollars which is even more minimal when comparing the size of TYO vs NYSE. This was considered an unprecedented move by the Fed but it also played a part in preventing total collapse of the stock market. In fact by the end of 2020 the NYSE Composite had returned to the levels of the pre-pandemic era.

After the core of the pandemic was over the downstream inflationary effects of high government spending combined with supply chain issues hit the world. The BOJ bought 2.8 Trillion and 6.3 Trillion Yen respectively in October 2022 helping to pull Yen out of the economy in a time of inflation, these measures helped to ensure that Japanese inflation remained below that of the US and the EU (The EU was simultaneously dealing with the energy crisis caused by the Russian invasion of Ukraine).