Japan’s Monetary Experiment

The BoJ has embarked on a radical new adventure:

BOJ shocks with new base money target, boosts asset buying

TOKYO: The Bank of Japan shocked markets on Thursday with a radical overhaul of its policymaking, adopting a new balance sheet target and pledging to double its government bond holdings in two years as it seeks to end nearly two decades of deflation.

At new Governor Haruhiko Kuroda's first policy-setting meeting, the central bank shifted its monetary policy target to the monetary base from the overnight call rate, which is set at a range of zero to 0.1 percent.

The unexpected scope of the changes Kuroda pushed through drove the yen lower and knocked the 10-year bond yield to its lowest in a decade.

Japan’s Lost Decades? Not Quite

From the East Asia Forum (excerpt):

The missing piece in the puzzle of Japan’s lost decades
Ippei Fujiwara

Japan’s average GDP growth rate was around 9.5 per cent between 1955 and 1970, and 3.8 per cent between 1971 and 1990.

But in the past two decades it has dropped to just 0.8 per cent a year. This big drop in the growth rate is synonymous with ‘Japan’s two lost decades’…

Low Interest Rates ≠ Loose Monetary Policy

An interesting, but misleading, viewpoint from the Beeb (excerpt):

Lesson from Japan: Do low interest rates boost growth? By Mariko Oi BBC News, Tokyo

…In part to help small companies such as Hosobuchi, central bankers in Japan have been keeping interest rates low, in order to reduce their borrowing costs.

The truth is we don't have enough businesses or the need for investments to borrow the money”

Japanese interest rates have been close to zero since the mid-90s, but it has not offered a miracle cure.