Sticking around Monetary Easing

One year has passed on Thursday, since Bank of Japan introduced new monetary policy to lead long-term interest rate to around 0%. While the bank has been successful in leading it to 0%, there is still not a sign for rising of commodity price, which is the fundamental purpose of the economic policy of Shinzo Abe administration. Economists concern Japanese economy being left behind of exit policy, which other countries are introducing.

BoJ introduced a policy to lead the interest of ten-year governmental bond to 0% in its policy decision meeting in September 2016. Before then, the bank had been taking quantitative monetary easing with injecting annual ¥80 trillion into the market through buying governmental bond. However, commodity price did not show effective move to rise, inviting an argument of limit of the policy.

After shifting the focus of monetary policy from quantity to interest, BoJ’s purchase of governmental bond reduced to the level of annual ¥60 trillion. But, the policy has not shown its effect of pushing up Japanese economy. Although low interest of long-term loan is thought to contribute further loan from the bank to company or housing loan, interest already in low level does not work for it. Low interest policy is facing a criticism that the central bank is supporting the government for not increasing its payment for the interest of governmental bond.

The decision of United States Federal Reserve Bureau on Wednesday, which announced starting of portfolio drawdown in October, was reported in Japan as a definitive move to the exit from monetary easing. FRB started its monetary easing after Lehman Shock in 2008. The policy was followed by finishing of quantitative easing in the fall 2014 and reboosting policy of interest rate at the end of 2015. The decision on Wednesday should be the final phase of normalization of US monetary policy.

BoJ’s monetary policy looks like sticking around monetary easing. While the ratio of commodity price hike in US or Euro community has exceeded 1.5%, that index in Japan is as low as 0%. “Monetary policy is decided with economic trend in each country,” explained Governor of BoJ, Haruhiko Kuroda, “and it is not strange for monetary policy in Japan to be different from US or Europe, because the ratio of commodity price hike in Japan is still far from the target.”

Kuroda or Abe attributes negative trend of Japanese consumers to “deflation mind” planted to them in these fifteen years. But, obvious reason for the consumers to accumulate their money stock is to prepare for unforeseeable future full of concerns, including extremely swollen national debt, unstable welfare policy or birth rate in low level.