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Mission Incomplete: Reflating Japan's Economy

Publication | February 2017
Mission Incomplete: Reflating Japan's Economy

In April 2013 the Bank of Japan launched an unprecedented quantitative and qualitative monetary easing policy. It was thought that a 2% price stability target could be achieved within 2 years; 4 years on and we are still mission incomplete.

Mission incomplete! This phrase neatly captures the progress made by the Bank of Japan (BOJ) in reflating the economy. In April 2013, the BOJ launched an unprecedented quantitative and qualitative monetary easing policy. The BOJ was certain that the 2% price stability target would be achieved within 2 years. About 4 years later, the BOJ lags behind other major central banks, with actual inflation and inflation expectations still well below 2%.

What happened? And what should the BOJ do next? This former policy maker’s account expertly traces and analyzes the policy’s consequences.

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Contents 

  • Introduction
  • Chapter 1: Japan’s Malaise and Past Unconventional Monetary Policy (1999–2006)
    • Long-Standing Mild Deflation since Late 1990s
    • Zero Interest Rate Policy and Forward Guidance of 1999–2000
    • Quantitative Easing (QE) of 2001–2006
  • Chapter 2: Comprehensive Monetary Easing (CME) (October 2010–March 2013)
    • BOJ’s Policy Actions prior to the Adoption of CME
    • Basic Features of CME
    • Forward Guidance and Adoption of the 2% Price Stability Target
    • Issues and Criticism Related to the Framework of CME
    • Macroeconomic Performance under CME
  • Chapter 3: Quantitative and Qualitative Monetary Easing (QQE): First Phase of Super-Easy Monetary Policy (April 2013–January 2016)
    • The Three Phases of Super-Easy Monetary Policy
    • My Proposal on Monetary Expansion Submitted in March 2013
    • The Features of the QQE Policy
    • Four Features Related to the QQE Framework
    • Forward Guidance on the Stance of Monetary Policy under QQE
    • Transmission Mechanism for Achieving the 2% Target and Market Reactions
    • BOJ’s Decision to Expand QQE in October 2014
    • Assessment of QQE and QQE Expansion and BOJ’s Evaluation
  • Chapter 4: QQE with a Negative Interest Rate: Second Phase of Super-Easy Monetary Policy (January–September 2016)
    • Main Features of QQE with a Negative Interest Rate
    • Rationales for Introducing the Complex Three-Tier System
    • My Opposition to the Timing of Introducing the Negative Interest Rate
    • Unique Market Reactions to the Policy Announcement
    • Benefits under the Negative Interest Rate Policy
    • Cost and Side Effects of the Negative Interest Rate Policy
    • BOJ’s Enhancement of Monetary Easing in July 2016
  • Chapter 5: QQE with Yield Curve Control: Third Phase of Super-Easy Monetary Policy (September 2016–present)
    • The Features of QQE with Yield Curve Control
    • Explanations and My Interpretation of the New Framework
    • The Peg or Ceiling and Fixed-Rate Purchase Operations
    • Positive Aspects and Challenges Related to the New Framework
    • Changing the Composition of ETF Purchases to Mitigate Distortion in the Stock Markets
    • My Suggestions as for the BOJ’s Action in 2017
  • Chapter 6: Structural and Unresolved Issues of Unconventional Monetary Policy
    • Declining Potential Economic Growth and Monetary Policy
    • Underlying Inflation and Households’ Price Perception
    • Super-Easy Monetary Policy and Unresolved Issues