Bank of Japan’s Quantitative and Credit Easing: Are They Now More Effective?

This paper asks whether the BoJ’s recent experience with unconventional monetary easing has been effective in supporting economic activity and inflation. Using a structural VAR model, the paper finds some evidence that BoJ’s monetary policy measures during 1998-2010 have had an impact on economic activity but less so on inflation. These results are stronger than those in earlier studies looking at the quantitative easing period up to 2006 and may reflect more effective credit channel as a result of improvements in the banking and corporate sectors. Nevertheless, the relative contribution of monetary policy measures to the variation in output and inflation is rather small.

Japan has had a long experience with quantitative easing, dating back to 2001. Following a period of zero interest rate policy (ZIRP) during 1999–2000, the Bank of Japan (BoJ) introduced quantitative easing in March 2001. Under this policy, the BoJ used purchases of Japanese Government Bonds (JGBs) as the main instrument to reach their operating target of current account balances (CAB) held by financial institutions at the BoJ (bank reserves). The BoJ exited quantitative easing in March 2006, amid signs that the economy was emerging from deflation. Following the global financial crisis, the BoJ increased the pace of its JGB purchases and adopted a number of unconventional measures to promote financial stability. In October 2010, the BoJ introduced its Comprehensive Monetary Easing (CME) policy to respond to the re-emergence of deflation and a slowing recovery. One key measure was an asset purchase program involving government securities as well as private assets (see Ueda 2011 for a detailed description).

Research on the effectiveness of earlier quantitative easing has yielded mixed results, with most pointing to limited effects on economic activity. While most papers found evidence that quantitative easing helped reduce yields, its effect on economic activity and inflation was found to be small. The reasons cited included a dysfunctional banking sector, which impaired the credit channel, and weak demand for loans during a period when corporates were deleveraging. The situation since then, however, has improved, with a strengthening of banks’ balance sheets and restructuring of the corporate sector after the banking crisis of the late 1990s.

This paper revisits the question of whether quantitative easing and other unconventional monetary easing measures in Japan are now more effective given improvements in the banking and corporate sectors. Specifically, this paper assesses the impact of monetary easing on economic activity and inflation extending the period of analysis to 2010 to include the easing measures after the Lehman collapse. The paper finds that there is some evidence that monetary easing has supported economic activity and to a lesser extent inflation. Nevertheless, relative to all other economic variables included in the VARs a small portion of the variation in output and inflation is explained by the shocks to monetary policy variables.

IMF. Author/Editor:Berkmen, Pelin. Working Paper No. 12/2

Bank of Japan’s Quantitative and Credit Easing: Are They Now More Effective?

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OECD composite leading indicators continue pointing to slowdown in economic activity in most major economies

News Release. Paris, 12 January 2012. OECD. Composite leading indicators (CLIs), designed to anticipate turning points in economic activity relative to trend, continue pointing to a slowdown in activity in most OECD countries and major non-member economies.

The assessment is little changed compared to last month for most countries, but the CLIs for Japan, United States and Russia are showing stronger signs of a positive change in momentum and remain above long-term trend. The CLI for China has deteriorated since last month and is pointing to a slowdown in economic activity towards long-term trend. For other major economies and the Euro area, the CLIs continue pointing to slowdowns.

The above graphs show country specific composite leading indicators (CLIs). Turning points of CLIs tend to precede turning points in economic activity relative to long-term trend by approximately six months. The horizontal line at 100 represents the long-term trend of economic activity. Shaded triangles mark confirmed turning-points of the CLI. Blank triangles mark provisional turning-points that may be reversed.

Methodological Notes:

The CLI methodological notes are available at: http://www.oecd.org/dataoecd/22/47/44728410.pdf 

Access data:

CLI data is available at: http://stats.oecd.org/wbos/default.aspx?datasetcode=MEI_CLI

CLI data for 33 OECD member countries and 6 OECD non-member economies are available at: http://stats.oecd.org/wbos/default.aspx?datasetcode=MEI_CLI

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ASEAN Connectivity Plan Technical Assistance

The Asian Development Bank (ADB) has approved the following technical assistance. This technical assistance will improve integration in the ASEAN subregion by building on the Master Plan on ASEAN Connectivity, endorsed by leaders in 2010, and establishing a development partnership mechanism to assist in the wider coordination needed to support ASEAN connectivity. It will also develop models to finance ASEAN infrastructure initiatives and focus on financial due diligence and priority project pipeline development. Amount: $975,000 equivalent financed by the Japan-ASEAN Integration Fund.

The importance and the associated resources required in improving regional connectivity to support economic development are well recognized. Thus prioritizing key projects and identifying alternative forms of financing will help address Asia's large infrastructure need. The Association of Southeast Asian Nations (ASEAN) leaders endorsed the Master Plan on ASEAN Connectivity (MPAC) in 2010. The MPAC represents an in-depth plan of action based on (i) a list of priority projects for ASEAN connectivity, (ii) requirements for institutional and policy coordination, and (iii) recommendations for financing key projects

Outputs:

(i) Resource mobilization due diligence, including financial analysis of infrastructure financing initiatives ; 

(ii) Project pipeline formulation and due diligence, and 

(iii) Stakeholder consultation process for consensus building among ASEAN members on priorities for infrastructure financing

ASEAN Connectivity Plan Technical Assistance x

Azerbaijan:Japanese Grant for Co-financing Corporate and Public Sector Accountability Project

We refer to the Grant Agreement between the Republic of Azerbaijan (the “Recipient”) and the International Development Association (“World Bank”), as administrator of grant funds provided by Japan dated September 26, 2008 (the “Grant Agreement”). We also refer to your letter dated August 8, 2011, requesting the World Bank to make certain amendments to the Grant Agreement as well as further discussions with the World Bank.

World Bank.Author:Youness Ghada.Document Date:2011/09/23.Document Type:Agreement

Republic of Azerbaijan:Japanese Grant for Co-financing Corporate and Public Sector Accountability Project (Grant No.TF057849).Amendment to the Grant Agreementa

Bank of Japan’s Monetary Easing Measures: Are They Powerful and Comprehensive?

Bank With policy rates near the zero bound, the Bank of Japan (BoJ) has introduced a series of unconventional monetary easing measures since late 2009 in response to lingering deflation and a weakening economy.

These measures culminated in a new Asset Purchase Program under the Comprehensive Monetary Easing (CME) which differs from typical quantitative easing in other central banks by including purchases of risky asset in an effort to reduce term and risk premia.

This note assesses the impact of monetary easing measures on financial markets using an event study approach. It finds that the BoJ’s monetary easing measures has had a statistically significant impact on lowering bond yields and improving equity prices, but no notable impact on inflation expectations.

Author/Editot: Lam, W. Raphael.Authorized for Distribution: November 01, 2011. Working Paper No. 11/264

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Bank of Japan’s Monetary Easing Measures: Are They Powerful and Comprehensive?

Statement by IMF Managing Director Christine Lagarde at the Conclusion of her Visit to Japan

Ms. Christine Lagarde, Managing Director of the International Monetary Fund (IMF), issued the following statement today in Tokyo:

“This is my first visit to Japan as Managing Director of the IMF, and it has been a great pleasure to be here. I had very productive meetings with Minister of Finance Jun Azumi, Minister of State for Financial Services Shozaburo Jimi, Bank of Japan Governor Masaaki Shirakawa and other senior officials.

“We discussed the urgent challenges facing the global economy today, the Euro Zone in particular, and their implications for Japan and Asia. This region clearly continues to propel the global recovery but, at the same time, if strains in the Euro Zone worsen further, Asia would be negatively impacted through both trade and financial sector channels.

“Given the increasing interconnectedness among nations, we agreed on the importance of strengthened international cooperation and decisive policy action to ensure strong, sustainable and balanced growth.

“I noted how impressed I am with Japan's recovery since the devastating earthquake and tsunami in March. Swift policy action by the authorities and the resilience of the Japanese people have helped the economy to rebound, despite the difficult global environment.

“In my meetings with the authorities, we shared the view that Japan’s recovery will continue next year, supported by reconstruction spending, but that Japan, like the rest of the world, will face challenges given the difficult situation in Europe.

“We shared the view that the priorities going forward are the swift implementation of reconstruction spending, and the adoption of a strong medium-term plan to reduce public debt. Maintaining accommodative monetary policy by the Bank of Japan is also important. Structural reforms to further trade liberalization and raise the labor force participation of the elderly, young, and women will also support medium-term growth. In addition, I welcome “Prime Minister Noda's announcement that Japan will participate in negotiations on the Trans-Pacific Strategic Economic Partnership Agreement (TPP), which can make a vital contribution to this country's future competitiveness and growth.

“I thanked the Japanese authorities for their continued support of the IMF. Next year marks the 60^th anniversary of Japan’s membership in the Fund, and we are very pleased to be holding the 2012 IMF-World Bank Annual Meetings in Tokyo at this important time.

“Japan has consistently been one of the IMF’s most important partners, including as a strong supporter of our technical assistance work. We look forward to working closely with the Japanese people to make the 2012 Annual Meetings a big success.

“Again, it was my great pleasure to return to Japan and I would like to thank the Japanese people, as always, for their warm hospitality.”

Press Release No. 11/408
November 12, 2011