Comparison between Japanese and Canadian Central Bank Policies Essay Example for Free

Comparison amidst lacquerese and Canadian Central strand Policies EssayThe sacrifice paper is an investigation of the fundamental beach policies in the countries of japan and Canada. The paper takes into interrogation Bank of Japan and Bank of Canada and explores the grounds on which similarities and differences, if any, apprize be noted. This study is a comparison between the telephone exchange blasphemes policies of twain the countries. The structure of the paper overviews the avowing form of both the countries then furthers with individual analysis only to bring a major comparison at the second last sh be. The paper discusses findings in the conclusion section and makes recommendations for future polity do and development.2- OverviewThis section overviews the past, present of the two banks in the concerned countries. This is in the attempt of creating a base of the later sections that would be dealing with particularised form _or_ system of government issues of the two banks.2.1- Japanese Banking SystemToday Japanese banking lineamental law finds its foundational root in the aftermaths of World War II and is still continuing to grow support for the financial and industrial organizations of the unpolished. Ever since World War II, Japanese banking system has gone through a second of changes and adaptations in corpo stride manner as well as in the shaping of economic and regulatory policies.The uttermost that target be said to be the golden time for the development of the Japanese banking system is necessitateed to be from the early 1950s to the early 1970s. This was the time when Japanese firms were growing rapidly and needed financial keep and monetary assessment to hold solid on the corpo invest grounds. However, from the 1970s, some changes were experienced by this banking system and that solid position was shaken. Of the major reasons, international paradigm change in financial transactions, corpo set behavior with regar d to investment of funds both internal and external, (firms started issuing securities rather than borrowing from banks) and new(prenominal)(a) a good deal(prenominal) reasons can be said to be the causes for the shaking of such a strong banking system as was in Japan once especial up to the early 1970s.Up to the present day, in the Japanese financial system, bank loans still possess the dominant place as the external financing seed for the corpo mark sector which is non-financial until 1986 the borrowings done from private institutions were recorded to be much than seventy percent. Other such common services as issuance of bonds, client monitoring, cost monitoring for incompatible services, and so front state of ward argon alike found to be in practice in the Japanese banking system. As such, in that respect is much more that is needed to be examined in this countrys banking system that makes it notable on the international horizon (Aoki, Patrick, Sheard, pp. 1-15, 199 4).2.2 Canadian Banking SystemThe central banking system of Canada is alike with its typical issues and challenges and up to the present time, these challenges have been multiplying for a number of factors. For example, nowhere in history general public was so much conscious about the evil unemployment and is now showing a hyper attitude which simply put the origination and its financial institutions up front to the blame. As such, the challenges argon to make such financial policies as can help confront these challenges and move over them. Although the central bank of Canada did go through a prospicient achievement of adjustments, say the depression period of the 1930s and later, Neufeld (1958) notes that The constitutional adjustments experienced by the Bank of Canada were not as great as those of some older central banks (p. 4). There atomic number 18 noteworthy reasons for this observation.For instance, kickoff in the market, the bank was sponsored by the government lead ing to a stable position. However, political interventions and the banks responsibilities to cater for the needs or demands of the political party government continued to exist. The bank went through war crisis, financial in perceptual constancy, and social pressures like unemployment, all along its birth becoming an adult from an immature youth. At present the Bank is in a more kick upstairsable position to serve for the purposes of the government and carry out its multifarious purposes with regard to financial activities along with the challenges. Some of the challenges that the bank faced during its stability periods were serious conflicting exchange outflows and phenomenal capital inflows (212).The three atomic number 18as, back in the stability phase, i.e., bond market, stock exchanges, and irrelevant exchange markets, have been tactfully established by the bank to create a positive paradigm of the overall economic situation of the country. Presently, the Bank holds a pri mary position in the decision making process of these three areas. Today, as a successful bank, the expert opinion about this bank is that it has dealt in the time of difficulty more with technique which was versatile than conservatism (213). The banking system of Canada is in a unvaried process of up gradation for better output one such instance is the use of geographic information systems (GIS) technology for a wide range of applications (Macdonald, 2001, p. 419). Therefore, it is historic to have a deep examination of the policies and practices of this bank so that the insiders view can help others form such a system in any other country.3-Policies of the Bank of JapanThere are a number of policy issues that need to be revisited but for the limited space of the paper, only a few major are discussed. First of all, policies of the Bank of Japan (BOJ) have been central to critics attention collectible to a number of reasons but the most important is that it is one of the three G-3 central banks that have been reviewed in the past decades. The special features of BOJ are numerous. The most apparent, however, is its stance on deflation. Although BOJ was forced to take a highly leveraged position in topical anesthetic financial purlieu, it has taken no risk to fight the challenge. Moreover, it might have been possible for the bank to bequeath in to a number of challenges that were created by deflation, however, the bank continued to survive with a number of diametrical policies and measures (Cargill, 2005, p. 311).BOJs approach to monetary policy is pragmatic. The overall concentrate of this monetary policy is to maintain stability in price and encourage economic development. To meet these ends, the Bank monitors such areas as exchange rates, the aggregates of money, the indices of consumer and sweeping rates, growth of the GDP, production taking place in the industry, on-going interest rate in the market, prices of assets, and a number of other factors . It is also notable that in the fly the coops of the Bank, international policy association and coordination can also exploit a role in the Banks domestic policy making. It is important to note that throughout its existence the BOJ has never come to stand as hardcore monetarist. Instead of this, the Bank has been treating the policy making of money more like a form of art. There are a number of methods by which the Bank lets its policies become public. The implementation of policies also takes a number of forms, for instance, discount window guides other financial institutions through loans etc. (Miller, 1996, pp. 1-47).By the late 1980s, BOJ held its position as positive in the eyes of the critics due to a number of policy making issues since WWII. Up to then the bank had gone through a number of remarkably shaky times coping up with such challenges as industrialization and establishment of it. By that time major characteristics of BOJ were its commitment to price stability and positive outcomes that came out of its policies. The most important point is that since its establishment, its legal position did not go through a change. Then it was the only bank rated as the most dependent of all the central banks in the world. Hence the notable feature is its safekeeping price stability instead of being a dependent bank. It also contradicted the widely acclaimed view that the more independent a central bank, the more price stability would be extended (Cargill, 2005, p. 311).May 1989 is the period called the low point policy period of BOJ which continued through the year 2004. Here the bank increase the rate of discount in a number of steps that included historically low rate of 2.5 percent to 6.0 in the first stage of 1991. It was sternly a reaction against the asset largeness of the 1980s. However, the abrupt recession and diminishing asset rate backed the bank to move for ease of policy in 1991 and the call and discount rates came down to 0.05 percent by the early 1995. Until it obtained the first 0 rate of interest policy in 1999, the bank went on lowering call rate discount. It was drawn to a close in 2000. It came back to zero rate policy again in 2000 and go on to a statistical easing down of policy in 2001 because declining thrift alerted the causationities moreover, it needed to collect a different framework of operation for short-term rates on interest which had to be essentially zero (Cargill, 2005, p. 311).Although internationally, it is the reputation of the Bank of Japan that it has been moving too gradually in terms of the formation of monetary policy, fiscal policies, and resolving the issues present to it, there are important areas where this criticism becomes void. For example, Japan is oft compared with the USA without considering the fact that former faced a great many more problems than the latter. Additionally, there are such instances as Japans tighter economic policy in 1996 that has much to discard this crit icism (Browne, 2001, p. 3).4- Policies of the Bank of CanadaThe Bank of Canada (BOC) is often criticized for influencing the level of price, jobs, and the development of its countrys economy. However, in the new historic period the Bank has acquired a reputation that it is very concerned with keeping the inflation rate low so that it can make other ends meet for broader goals of economy. The Bank has also been charged with its acute concerns to inflation rate only and looking over such challenges as unemployment and economic growth. However, there are proponents of the Banks policies who come forward to defend the policies of the bank as they are presently in practice stating that if the focus of the Bank shift to the vice versa perspective, there would be no growth in economy and inflation rate will increase causing devaluation of the dollar. Vanderhart (2003) conducted an in-depth analysis of BOCs response to inflation rate and other such concerns as unemployment, growth of econ omy, and other factors.The author found that there is insufficient evidence to adumbrate that the Bank of Canadas response to economic data available on inflation is direct, inflationary precursors as raw materials and intermediate goods prices are only significant when other important factors are omitted (p. 357). But the author does not make it a remark that the Bank does not follow the procedures to pursue anti-inflationary policy. What the BOC has successfully achieved with regard to keeping control over inflation is that it responds to those factors which are other than the releases of price level data. Moreover, the recent policies also prompt to the suggestion that the Bank is taking measure to fight the challenge of unemployment.Two factors also came up to the authors analysis that determined the actions and responses of the BOC. These are exchange rates and federal fund rate. The bottom line that the author draws is the there is little doubt about the health of the Canadia n economy and the BOC is actively involved in the process of keeping this health stable. However, if some out-of-Canada issues are present, there whitethorn be some criticism on the Bank for example, its interconnection with the U.S. monetary policy because there are voices that might want a Canada which is independent of U.S. related economic policies (Vanderhart, 2003).If we review comparative analysis of Canadian economic growth with other countries (say Australia), there is sufficient evidence to mark the above observation that the Canadian economy has grown stronger than before and that such challenges as labor utilization has been carefully handled in the favor of the country. Harchaoui, et al. tell us that the growth of Canadas real average income has large credit to a majestic improvement in the way labor has been utilized, i.e. the combination of high average hours worked and a high rate of employment in the total population. In addition to this, capital deepening effect h as also played an important role in the present stability of the Canadian financial outlook (Harchaoui, et al., 2005, p. 36).5- Bank of Japan and Bank of CanadaComparing the policies of the central banks of Japan and Canada each gives us more insight. There are a few studies that have been done on the comparative analysis. In one such study, Tomljanovich (2007) informs that the central banks of these two countries (including banks of other countries, as well) are on a constant pursuit of having open talks with the general public and this is in the efforts of increasing efficiency and reducing volatility in financial markets. In the case of Canada, which comes in the category of a majority of interest rate maturities, it is found that there is great predictability in terms of market functions because there is a high flow of information to Canada and this flow coincides with sub-periods simultaneously to lower interest volatility rate. However, Japan (as well as Germany in this study ) appears to be the only country in which there is no such evidence of lower interest volatility. Moreover the study shows that the central Bank of Japan and the central Bank of Canada both moved to greater transparency measures in the mid-nineties which shows that both these banks want to progress on the modern lines (p. 791).As for the policies of Canadian central bank, it is evident that there is inclination of these policies to those of the U.S. There is no doubt that Bank of Canada has greater interests in keeping these ties with the financial environment of the U.S. monetary and fiscal policies. However, Bank of Japan has stood on a very different turf that is of liberty with dependence and of unique regulatory framework of all policies handled ever since World War II. There is no doubt that government like Canada and Quebec recognize China and Japan for their strategic partnership in the sphere of Asia. For this the credit goes to Japanese ever-growing economic curve which in turn holds credit for the policies that the central banking system of Japan for a long time formulated, ran, and implemented successfully (Inomata, 2002, p. 259).6- ConclusionExamination of the policies of central Bank of Japan and the central Bank of Canada in detail reveal that both countries have to face challenges that emerge from their specific environment. There are similarities and differences in the approaches of the Banks of both the countries. One acute similarity is that both countries have moved to greater transparency and are considered successful banks on the international horizon. another(prenominal) is that Banks of both these countries are pore more on interest rate and inflation level stability. For this purpose, however, the approaches of the two banks are different both are putting efforts to fight the challenge of unemployment. As for the differences, Japanese bank is legally dependent, whereas, Canadian bank is independent yet there is this sharp observatio n that Bank of Canada looks at the U.S. financial environment for policy making, whereas, Japanese Bank looks at its own typical challenges that need to be tackled on the international front. Another important thing which comes out from this study of the two banking systems in two different countries is that both function in their own environment and that it is not possible to find acute similarities in both the systems because of different financial and social outlook of the countries.This is important to look into more details in these central banks and banks of other countries as well so that a sound analysis about policy making and other measure against present and upcoming challenges can be met.