Stanford economist evaluates Japan’s monetary policy assessment

flickr toyohara People walk past the Bank of Japan building, Tokyo, Japan.

The Bank of Japan (BOJ) conducted a comprehensive assessment of the “Quantitative and Qualitative Monetary Easing (QQE)” on Sept. 21.  In Nikkei Shimbun, Takeo Hoshi gave his evaluation of the results and urged renewed focus on structural reforms in order for Japan to not lose another opportunity for its economic recovery.

The article was republished with permission and is available in English and Japanese below.

What Abenomics Is Missing: Structural Reforms Needed for Economic Revival

On September 21, 2016, the Bank of Japan announced a “comprehensive assessment” of its quantitative and qualitative monetary easing (QQE) policy, concluding that the decline in real interest rates over the three years since QQE was introduced in 2013 has lifted the Japanese economy out of deflation.

At the same time, the BOJ noted that its “price stability target” of 2%, which was to have been achieved in two years, is still not in sight. Inflation failed to materialize, the bank said, due to a fall in crude oil prices and other exogenous factors, as well as the fact that inflation expectations—which rose at the start of QQE—subsequently went flat and have recently weakened.

The negative interest rate policy that was introduced in January, the BOJ added, has substantially pushed down interest rates “across the entire yield curve,” affecting not only short-term but also long-term interest rates. But it also referred to the policy’s “negative consequences for financial institutions’ profits.” As the figure illustrates, the yield curve declined immediately after the January 29 announcement, and even 10-year Japanese government bond yields have now fallen into negative territory.

Changes in the Japanese Government Bond Yield Curve (2016)

Hoshi Figure

Valid Assessment

Based on the conclusions of its assessment, the BOJ also announced a new policy framework calling for “QQE with yield curve control,” establishing a target (of around 0% for now) for 10-year JGB yields and making an “inflation-overshooting commitment” to continue with QQE even after the price stability target of 2% has been attained.

On the whole, the bank’s assessment presents a level-headed analysis of the impact of its monetary policy, and its conclusions are quite valid. The focus it gave to the importance of inflation expectations is also correct, as the initial success of QQE was precisely the result of the impact it had on market expectations. Inflation expectations rose before QQE had any impact on actual price levels, leading to lower real interest rates (nominal rate minus expected rate of inflation), higher stock prices, a weaker yen, and a boost in economic activity.

For many years, the BOJ had frowned on nontraditional monetary policies, and this hindered Japan’s efforts to overcome deflation. Since the appointment of Haruhiko Kuroda as governor, though, the BOJ has dramatically shifted course, acting with firm conviction that deflation can be defeated through QQE.

The rate of inflation failed to rise as anticipated, however; consumer prices are no longer declining, as they had been under deflation, but the inflation rate remains stubbornly low, having long hovered below 1% and recently once again approaching 0%. And while there was an initial jump in inflation expectations, they, too, have begun to decline without ever having pushed up the actual inflation rate.

Why has this been the case? The BOJ’s assessment points to the fact that in Japan, realized past inflation has a larger impact on wage negotiations than expected inflation, while medium- to long-term inflation expectations are more important determinants of wages in the Unites States and Germany. To test such an assertion more rigorously, it would have been helpful if the BOJ had offered a regression analysis using short-term inflation expectations as a variable as well. That said, one can still probably conclude that the biggest reason for the failure to reach the 2% inflation target was that inflation expectations were not fully incorporated in wages.

Doubts about Effectiveness

While the conclusions of the BOJ’s comprehensive assessment may be valid, I am skeptical about the effectiveness of the newly announced framework for yield curve control. The new policy is not an attempt at further monetary relaxation. As the figure shows, the yield on 10-year JGBs is already below the target of 0%. The effort to reinforce the BOJ’s commitment by announcing that QQE will continue even after the 2% price stability target is reached is not effective, either. We might even say it is misguided.

There were times in the past when the bank’s commitment was called into question. For example, the zero-interest-rate policy that was first introduced in 1999 was quickly terminated a year later, despite the fact that deflationary conditions still persisted. Various attempts at monetary easing undertaken over the ensuing decade achieved a certain degree of success, but they came to an end each time as soon as inflation returned to around 0%. There is no doubting the BOJ’s commitment under Governor Kuroda, though, as the bank has repeatedly and unequivocally affirmed its intention to take all necessary policy steps to achieve 2% inflation.

What remains dubious is whether the policies taken to date, including negative interest rates, are effective. The most important conclusion of the BOJ’s comprehensive assessment is that inflation expectations have failed to trigger higher wages and a surge in prices. The new framework for yield curve control, unfortunately, does nothing to address this issue.

One way of getting around this disconnect is to adopt measures that would lead directly to higher wages. Noting that Japan “needs meaningful positive inflation for reasons of fiscal stability,” Olivier Blanchard and Adam S. Posen of the Peterson Institute for International Economics proposed in a December 2015 Financial Times op-ed that nominal wages in Japan be boosted by 10% across the board (”Japan’s Solution Is to Raise Wages by 10 Percent”). While such measures are beyond the scope of monetary policy, the BOJ can certainly encourage the government to take action along these lines, as it would help the bank achieve its inflation target.

Need for Sweeping Reforms

Achieving the inflation target is not the most important goal for Japan. What the Japanese economy needs more is real economic growth. Abenomics may have helped to halt a downtrend in prices and end deflation in the narrow sense of the term, but a more important test is whether it can more broadly lift the country out of the deflationary state in which it has been stuck for decades. This, though, as the BOJ has maintained all along, is not a task for the bank to tackle alone.

Lack of demand is not the only cause of the decades-long stagnation. If it were, and if Japan’s potential growth rate had not declined, the economy would have been hit by a runaway deflationary spiral—not the gradual lowering of prices that it actually experienced. This suggests that there were problems on the supply side as well.

Monetary and fiscal policy tools can be mobilized to prop up faltering demand and pull the economy out of deflation, narrowly defined. But unless supply-side issues are also addressed, there will be no return to robust growth. Such a path will require sweeping reforms to restructure the economy into a shape befitting its level of maturity.

The initial success of QQE substantially alleviated weaknesses in demand. The output gap (the difference between the potential output and actual output of an economy) has recently been hovering around 0%, according to BOJ estimates, suggesting that further monetary and fiscal expansion to boost demand would not promote growth. Of greater importance—now more than ever—are structural reforms to expand potential output.

The third of the “three arrows” of Abenomics is a growth strategy consisting of various reforms to boost potential output. Compared to the first arrow of monetary easing, though, very little progress has been made in this area. What we need is a comprehensive assessment not only of monetary policy but of Abenomics as a whole, particularly its growth strategy.

Twenty-one years ago, in September 1995, with telltale signs of deflation on the horizon, the BOJ took the preventive step of lowering the official discount rate to 0.5%. The statement released by the bank at that time concluded that the problems confronting the Japanese economy could not be solved with monetary measures alone and that drastic deregulation and other structural reforms were also needed to ensure the effectiveness of looser credit.

This has been the BOJ’s position over the two decades since then. The BOJ has been doing more than its share, at least in the past few years. It is high time for the Japanese government to heed this call and advance full-fledged structural reforms, lest another valuable opportunity for economic revival be squandered.


Courtesy of Tokyo Foundation,… (Translated from “Abenomikusu no sotenken o,” Nihon Keizai Shimbun (Keizai Kyoshitu section), Sept. 30, 2016.)

アベノミクスの総点検を 成長戦略・金融緩和両輪で


 それによると、量的・質的金融緩和は導入後3年間で実質金利を低下させ、経済はデフレの状況から脱出できた。しかし2年間で達成するはずだった 2%という物価上昇率の目標はいまだ実現されていない。その原因は、原油価格下落などで実際の物価上昇率が低下し、政策導入直後には上昇し始めた予想物価 上昇率が次第に横ばいになり、最近はまた低下したことにある。

 今年2月に始めたマイナス金利については、すべての期間で金利が大幅に低下する効果があった一方、金融機関の収益圧迫による悪影響も考慮せねばな らないという。図に示すように1月29日の発表直後からイールドカーブ(利回り曲線)が下方にシフトを始め、直近では10年物までがマイナス金利になって いる。



Hoshi Figure


 検証を踏まえて、日銀は新しい金融政策の枠組みとして「長短金利操作付き量的・質的金融緩和」を導入した。10年物国債金利に目標(当面はゼ ロ%)を設定した点と、消費者物価上昇率が2%を安定的に超える状態になるまで金融緩和を続ける「オーバーシュート型コミットメント」を導入した点が新し い部分だ。

 検証は全体として金融政策の効果を冷静に分析しており結論も妥当といえるだろう。分析が期待の重要性に焦点を当てているのも正しい。量的・質的金 融緩和の初期の成功は期待に働きかけた結果だった。金融緩和が実際のインフレ率に影響を与える前に期待インフレ率が上昇し、その結果として実質利子率(名 目利子率から期待インフレ率を引いたもの)が低下し、株価を押し上げ、円を減価させ、景気を刺激することになった。



 インフレ期待が実際のインフレ率に反映されなかったのはなぜか。検証は、日本の賃金決定は中長期の期待インフレ率よりも過去のインフレ実績が大き い影響を与える点を指摘する。「米独では交渉賃金の適用期間がわが国よりも長いため」と推測するが、それを確かめるため短期の期待インフレ率を使った回帰 式も推定してほしかった。いずれにせよインフレ期待が賃金に反映されなかったことが、2%のインフレ目標が達成されない最大の理由だろう。


 検証の結論は妥当だが、それを踏まえた新しい政策の有効性には疑問がある。まず現状に比べてどれほど緩和になっているか疑わしい。図に示したよう に、10年物国債の金利は既にゼロ%を切っている状態だし、2%のインフレ目標が達成されていない段階で、2%を安定的に超えるまでは金融緩和を続けると いうことが、どれだけの違いをもたらすのか疑問だ。日銀のコミットメントを強めようとする政策は的外れでさえある。

 過去には日銀のコミットメントが疑われることはあった。1999年に始まった最初のゼロ金利政策は00年にまだデフレ的状態が続く中で解除され た。00年代の量的緩和もある程度の成功は収めたが、インフレがほぼゼロまで戻った段階で解除してしまった。だが黒田総裁の下では、日銀は一貫して2%の インフレ目標のためにあらゆる政策をとることを明確にしてきたし、日銀の姿勢を疑う者はほとんどいないだろう。


 期待インフレ率の上昇が賃金の上昇につながりにくいなら、賃金の上昇に直接働きかける方が、目標インフレ率の達成のために有効ではないか。米ピー ターソン国際経済研究所のオリビエ・ブランシャール、アダム・ポーゼン両氏はこの観点から最近、日本経済をデフレに近い状態から脱出させる政策として、一 律10%の賃金増加を提言している。賃金の増加を促すような政策は金融政策の範囲ではないが、インフレ目標を達成しようとする日銀が提案してもよい政策で はないだろうか。


 2%のインフレ目標を達成できるかよりも重要なのは、日本経済を停滞から脱出させられるかだ。物価水準の下落が続く狭義のデフレから抜け出すだけ でなく、20年に及ぶ経済停滞という広義のデフレ状態に終止符を打てるか。だが一貫して主張してきたように、金融政策だけではなし得ないことだ。

 20年間に及ぶ日本経済の停滞は需要不足によってのみ引き起こされたのではない。もし需要不足だけが問題で、日本経済の潜在的成長率が低下しな かったなら、日本は穏やかなデフレではなく、デフレの幅がどんどん広がるデフレスパイラルに陥っていただろう。そうならなかったことは、需要側だけでな く、供給側も停滞していた証拠だ。

 金融緩和や財政出動で総需要を刺激することで需要不足を解消し、狭義のデフレからは脱却できるだろう。しかし需要不足が解消しても供給側の問題が 解決されなければ、経済成長は回復しない。成長を取り戻すには、成熟経済の成長に適するように経済構造が変わらなければならない。

 量的・質的金融緩和の初期の成功により、需要不足はかなり回復した。日銀の推計によれば、最近のアウトプットギャップ(潜在産出量と実際の産出量 の差)はゼロになっている。金融緩和と財政出動に頼るだけでなく、日本の潜在産出量を拡大するような構造改革が今まで以上に必要とされているのである。

 安倍政権の経済政策「アベノミクス」の3本の矢の一つである成長戦略は、日本経済の潜在産出量を増加させるための様々な改革からなるはずだった。 だが第1の矢の金融政策に比べて、第3の矢の成長戦略はなかなか進まないようにみえる。金融政策の総括的検証に続いて必要なのは、アベノミクス全体の特に 成長戦略の総括的検証だろう。

 今から21年前の95年9月、日銀は既に兆しがみえていたデフレを防ぐため、公定歩合を0.5%に引き下げた。日銀はその際、日本経済の問題は金 融緩和だけでは解決できず、構造改革も必要だと指摘した。政策変更の発表文は「同時に、思い切った規制緩和の推進など構造政策の実施を伴ってこそ、こうし た金融緩和の効果が十分に発揮されるものと考える」と結ばれている。