Milestone 3

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Milestone 3

Raquel Colón

Regent University

Milestone 3

The policy of the Federal Reserve Bank and the Bank of Japan can affect the economic growth of Toyota. Monetary policy can influence consumer spending, which impacts any industry's economic growth. According to Cowen and Tabarrok, to combat a negative aggregate demand, the Feds can "increase the rate of growth of the money supply, reducing interest rates and encouraging more bank lending and investor borrowing, then the AD curve shifts back up and to the right" (2020, pp. 758). Policies are essential because they stimulate a nation's economic growth, navigate inflationary periods, and navigate recessions. The Central Bank of Japan serves the same purpose the Federal Reserve Bank does in the United States. The goal of the Central Bank of Japan is to "decide and implements monetary policy with the aim of maintaining price stability. In implementing monetary policy, the Bank influences the formation of interest rates for the purpose of currency and monetary control." (2022). Due to the current global inflation, both countries have taken different approaches to deal with the issues caused by COVID-19 pandemic disruptions. The Feds announced an increase in interest rates by 75 bps and a slowdown in economic growth, which signals an economic recession in the US. The Bank of Japan, on the other hand, has continued to keep interest rates low. The strategy is to continue to encourage consumer spending and lending. According to CNBC, Japan is facing a dilemma, "With Japan's inflation well below that of Western economies, its focus is to support the still-weak economy with low rates. But the dovish policy has triggered sharp yen falls, hurting an economy heavily reliant on fuel and raw material imports" (2022). These different policies have an impact on the economic growth of Toyota in both the US and Japan.

Economic growth for Toyota can be impacted in both markets because there has been an increase in the price of goods in the US, which slows down consumer spending. Increasing interest rates make consumers less likely to partake in auto loans. Whereas Japan is facing a different problem. Since the yen has depreciated in comparison to other currencies, “the price of imports will be higher and lower sales of imported goods” (Saito, 2022).

Fiscal policy is defined as “federal government policy on taxes, spending, and borrowing that is designed to influence business fluctuations” (Cowen & Tabarrok, 2020, pp. 805). The government having control of consumer spending is essential for economic growth. Government tax cuts are another option that can stimulate the economy during a recession. “The advantage of a tax cut is that the government doesn’t have to pick and choose which economic sectors to stimulate. A tax cut will stimulate anything that the public buys.” (Cowen & Tabarrok, 2020, pp. 812). The automatic stabilizers are probably better suited to avoiding lags that normally are found in fiscal policy. Fiscal policy in Japan is to balance its budget by 2025 although as of recent months Japan, has removed the target goal of 2025 from its policy. Toyota has been more impacted by the supply chain delays which has forced the company to reduce production in both the US and Japan at the beginning of 2022.

Reference:

Bank of Japan. (2022). Monetary Policy. Retrieved from

https://www.boj.or.jp/en/mopo/outline/index.htm/

CNBC. (2022). Bank of Japan maintains ultra-low rates, warns it is closely watching yen moves.

Published June 17, 2022. Retrieved from: https://www.cnbc.com/2022/06/17/bank-of-japan-maintains-ultra-low-rates-warns-it-is-closely-watching-yen-moves.html

Cowen, T., & Tabarrok, A. (2020). Modern Principles of Economics (5th Edition). Macmillan

Higher Education. https://mbsdirect.vitalsource.com/books/9781319329464

Saito, Jun. (2022). Japan Center for Economic Research “What Does the Depreciation of the Yen

Mean to the Economy?” Published May 17, 2022. Retrieved from

https://www.jcer.or.jp/english/what-does-the-depreciation-of-the-yen-mean-to-the-economy