The headquarters of Bank of Japan, in Tokyo, on Sept. 20.ISSEI KATO/Reuters
The Bank of Japan’s unconventional monetary easing steps taken since 2013 helped create jobs but had a limited effect in lifting inflation, a staff paper produced as part of a comprehensive review of its monetary policy showed on Wednesday.
At the time of taking up the BOJ’s top role in April, governor Kazuo Ueda announced a plan to conduct the comprehensive review to look into the effects and side-effects of various monetary easing steps adopted by the BOJ during its 25-year battle with deflation.
While the BOJ has said the review won’t have a direct impact on monetary policy decisions, analysts have said the discussions could offer clues on how Ueda could dismantle the radical stimulus measures deployed by his predecessor Haruhiko Kuroda.
Under Kuroda, the BOJ rolled out a massive asset-buying scheme called “quantitative and qualitative easing” (QQE) in 2013 to fire up inflation to its 2 per cent target in roughly two years.
After the target proved elusive, the BOJ introduced negative interest rates and yield curve control, which caps long-term borrowing costs around zero, in 2016.
The staff paper, which was presented for discussions at an inaugural workshop for the review on Monday, estimated that the stimulus measures since 2013 helped create jobs, and boost lending and output.
But they narrowed financial institutions’ margin and pushed up inflation by only around 1 per cent, according to estimates in the paper that was posted on the BOJ’s website on Wednesday.
A separate staff paper analyzed the impact of the BOJ’s monetary easing steps on financial markets, and concluded that liquidity in the bond market had deteriorated since the introduction of QQE.
The paper also said the shape of the yield curve became increasingly distorted from 2022, when rising global interest rates and heightening inflation expectations pushed up Japanese government bond (JGB) yields.
To iron out such distortions, the BOJ relaxed its grip on long-term interest rates by tweaking YCC in December last year, as well as in July and October this year.
The workshop, whose participants include BOJ staff, academics and private economists, was closed to the media. The next workshop is set for May.