Bank of Japan Suffers Stimulus Fatigue as Policy Costs Mount

Xing, Victor (2018): Bank of Japan Suffers Stimulus Fatigue as Policy Costs Mount.

Abstract

Policy debates within the BOJ has shifted toward making the QE programs more sustainable, for policymakers acknowledged it may take longer than expected to reach policy objective as rising costs become “hard to ignore;" possible policy changes may include tweaking the yield-curve control program to allow for a more natural rise in long-term interest rates to ease pressure on banks, and to shift ETF buying toward stocks linked to the Topix index. The policy considerations highlighted growing concerns over unconventional programs’ side effects on both the real economy as well as market disruptions, for the BOJ has become the top shareholder for some big corporations. Despite policymakers’ hesitance to connect social impacts to low interest rates, research by the BIS noted higher saving by indebted Japanese households to meet end-of-life objectives, as income overcomes substitution effects. While concerned about policy sustainability, the BOJ will likely look to prevent an uncontrolled rise in bond yields, but the on-going debates highlighted that QE is not costless, and BOJ officials are forced to re-examine policy path.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bank of Japan, Yield Curve Control, Quantitative Easing, Policy Costs, ETF purchases
• Subjects: E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; G - Financial Economics > G1 - General Financial Markets

References

Borio, C. (2018, 1 10). A blind spot in today's macroeconomics? Retrieved from Bank for International Settlements: https://www.bis.org/speeches/sp180110.htm

Hart, K. (2018, 5 24). The wildly uneven recovery from the Great Recession. Retrieved from Axios: https://www.axios.com/economic-growth-disparities-recovery-great-recession-443ae369-17a9-4e09-aef3-42ffe48e6cf1.html

Kihara, L. (2018, 7 20). BOJ to debate policy change in July to make its stimulus sustainable: sources. Retrieved from Reuters: https://uk.reuters.com/article/us-japan-economy-boj-exclusive/exclusive-boj-to-debate-policy-change-in-july-to-make-its-stimulus-sustainable-sources-idUKKBN1KA1X3

Kihara, L. (2018, 7 25). BOJ to mull changing composition of ETF buying next week: Nikkei. Retrieved from Reuters: https://www.reuters.com/article/us-japan-economy-boj/boj-to-mull-changing-composition-of-etf-buying-next-week-nikkei-idUSKBN1KF31I

Miller, C. C. (2018, 5 7). Americans Are Having Fewer Babies. They Told Us Why. Retrieved from The New York Times: https://www.nytimes.com/2018/07/05/upshot/americans-are-having-fewer-babies-they-told-us-why.html

Nakajima, J. (2018, 7 24). The role of household debt heterogeneity on consumption: Evidence from Japanese household data. Retrieved from Bank for International Settlements: https://www.bis.org/publ/work736.htm

Robb, G. (2016, 6 18). Central banks may do more harm than good, says head of India’s central bank. Retrieved from MarketWatch: https://www.marketwatch.com/story/in-interview-indias-rajan-says-monetary-policy-has-run-its-course-2016-04-15?ns=prod/accounts-mw

Sylvers, E. (2018, 6 17). The Force Behind Europe’s Populist Tide: Frustrated Young Adults. Retrieved from The Wall Street Journal: https://www.wsj.com/articles/the-force-behind-europes-populist-tide-frustrated-young-adults-1529250781?mod=e2t&ns=prod/accounts-wsj

Tomita, M. (2018, 6 27). BOJ is top-10 shareholder in 40% of Japan's listed companies. Retrieved from Nikkei Asian Review: https://asia.nikkei.com/Economy/BOJ-is-top-10-shareholder-in-40-of-Japan-s-listed-companies

Xing, V. (2016, 4 23). Ultra-accommodative Monetary Policy and Unintentional Drags on Consumer Spending. Retrieved from Research Papers in Economics, Research Division of the Federal Reserve Bank of St. Louis: https://ideas.repec.org/p/pra/mprapa/77749.html