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ECON Cleveland State University Increase in Japanese Monetary Base Questions

Very basic words as a second language and less than 80 words each question .1- The article explains how quantitative easing has now come to Europe. But the question is, Will this policy have a net benefit or will it harm the profitability of banks? Which do you think it is? Will quantitative easing in Europe make European banks more or less profitable? Why?2- Will the massive increase in the Japanese monetary base be enough for the Bank of Japan to hit its 2% inflation target? Do you think inflation in Japan will be above or below the 2% target? Why?

Easing Means Squeezing:
Quantitative Easing Has Both
Good and Bad Implications for
Europe’s Banks
The Economist
January 31, 2015
European bankers depressed by the miasma in Athens might cheer up a bit if
they focused on news from Frankfurt instead. The recent unveiling by the
European Central Bank (ECB) of a €1.1 trillion ($1.25 trillion) package of
“quantitative easing” (QE)—the printing of money to purchase vast quantities
of bonds—should be as heartwarming for them as a resurgence of the euro
crisis is chilling.
Cynics might be forgiven for thinking QE is a policy designed purely to aid
financiers. Banks, after all, borrow vast sums of money (from bond markets,
depositors and other creditors) to acquire financial assets (corporate bonds,
say, or the promise to repay a loan with interest). Even looser monetary policy
helps the banks on both counts. On the one hand, it is cheaper for them to
borrow money as interest rates are pushed lower. On the other, to drive bond
yields down the ECB will have to drive bond prices up. Banks, which own lots
of them, will be the biggest sellers….
But QE is also a threat to banks’ margins. The most basic measure of a lender’s
profitability is the gap between what it charges borrowers and the interest it
has to pay depositors. But few depositors are now getting any interest at all
on their savings, and it is difficult for banks to offer them negative rates.
Borrowers, however, will expect cheaper loans. The result is a nasty pincer.
The assumption in the markets is that the ECB will keep interest rates low for
an extended period. That undermines another lucrative trick, whereby banks
borrow money repeatedly for short periods, while lending it out for long ones.
Such “maturity transformation” earns a good return in normal times, when
interest rates for long-term borrowing are much higher than those on shortterm loans. The expectation now, however, is that interest rates will stay
“lower for longer”. That has dramatically reduced the difference in rates for
loans of different maturities, and with it banks’ opportunity to profit.
The article explains how quantitative easing has now come to
Europe. But the question is, Will this policy have a net benefit
or will it harm the profitability of banks? Which do you think
it is? Will quantitative easing in Europe make European
banks more or less profitable? Why?
Japan’s Monetary Base at
Record High in June: BOJ
Kyodo News International
July 2, 2014
Japan’s monetary base increased to a record 233.25 trillion yen in June, up
42.6 percent from a year earlier, the Bank of Japan said Wednesday, as the
central bank attempts to boost the economy by providing huge amounts of
money.
The average daily balance of liquidity that the BOJ injects, including cash in
circulation and the balance of current account deposits held by financial
institutions at the BOJ, grew for the 26th straight month, reaching a new
record for the 16th month in a row.…
In its unprecedented monetary easing, started in April 2013, the BOJ aims to
achieve an inflation rate of 2 percent within around two years, pledging to
double the monetary base in two years and purchasing massive amounts of
Japanese government bonds and other financial assets from banks.
Will the massive increase in the Japanese monetary base be
enough for the Bank of Japan to hit its 2% inflation target? Do
you think inflation in Japan will be above or below the 2%
target? Why?

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