Japanese Government Bond Purchases by the Bank of Japan

~ RICHARD PARKIN

To end deflation, the Bank of Japan has for years been buying Japanese government bonds. As a result, after many years at zero or below, annual inflation has spent much of the past year above 3 percent. These bond purchases have also kept yields low and reduced the government’s cost of borrowing.—economist.com

Answer the following questions to check your understanding of the story.

1) What is deflation?

Deflation is ____________.

2) From whom has the Bank of Japan been buying these bonds to fight deflation?

The Bank of Japan is buying ____________ from ____________.

3) How does the buying of government bonds by the Bank of Japan influence the real interest rate?

When a central bank buys government bonds, __________ which __________ the real interest rate.

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