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The “unprecedented” monetary easing operation by Bank of Japan Gov. Haruhiko Kuroda has entered its fourth year, but it remains far from clear when the central bank’s target of an annual 2 percent inflation — hoisted as a yardstick in the BOJ and Abe administration’s bid to bust deflation — will be achieved. Kuroda’s initial vow to achieve the goal in two years has since been pushed back — now to “by the first half of 2017.” The BOJ chief remains bullish that his policies are having the anticipated results, but Japan’s growth is still uneven and fragile. The latest tankan quarterly survey by the bank shows business sentiment has fallen back to levels right after Kuroda’s monetary stimulus was launched three years ago.

The cloudy economic prospects are fueling speculation that the BOJ will take additional easing steps — either expanding its massive asset purchases further to pump more money into the economy or increasing the negative interest rate policy that it began in January. But the performance of the past three years points to the limitations of relying on central bank actions alone in fighting deflation. Instead of taking more of the same steps, both the BOJ and the administration should review whether their policies are really effective in achieving what they claim to achieve.

Tapped by Prime Minister Shinzo Abe to take charge of a key component of his “three arrows” to pull Japan out of deflation, Kuroda launched the massive asset purchase program in April 2013 right after his inauguration as BOJ chief. With its annual purchase of ¥50 trillion in government bonds (whose scope was later expanded to ¥80 trillion), the central bank sought to double the nation’s monetary base — the new yardstick in its monetary policy — in two years. Kuroda stressed that the BOJ, by demonstrating its commitment to busting deflation, was aiming to raise inflationary expectations of the public and businesses, thereby encouraging them to spend and invest more.

The BOJ’s monetary stimulus apparently had the biggest impact among the Abenomics policies, which also included aggressive government spending and, supposedly, regulatory reforms to drive economic growth. The massive easing caused the yen to fall sharply against the dollar, pushing up the profits of export-led major companies to record levels, and triggering a surge in share prices. The increase in the cost of imports due to the weak yen, meanwhile, appeared to put inflation on course to meet the target set by the central bank.

But the inflationary trend lost steam following the consumption tax hike in April 2014, when the consumer price index (not including perishables and the effects of the tax hike) registered a 1.5 percent year-on-year increase. Personal consumption slumped as prices rose faster than wages, while inflation has fallen mostly flat in recent months with the decline in global crude oil prices.

The BOJ’s unabated asset purchases have indeed boosted Japan’s monetary base — which hit a record ¥375 trillion at the end of March, an increase of 27 percent from a year ago. The monetary base rose a whopping ¥240 trillion in three years from the ¥134 trillion in March 2013. But the biggest component of the monetary base remains financial institutions’ current account deposits in the central bank — which shot up 37 percent over the past year to ¥275 trillion as the BOJ kept buying government bonds from the institutions. The negative interest rate policy introduced by Kuroda in January — effectively charging fees on part of the money the banks keep in their BOJ accounts — is reportedly meant to prod banks to lend more and drive down interest rates, but what impact the policy will have on consumer and business sentiments remains to be seen. There are views — denied by Kuroda and others — that the negative rate policy itself is proof of the limitations of the measures the BOJ launched three years ago.

The BOJ’s latest quarterly survey showed that the diffusion index of business sentiments among large manufacturers — believed to be the top beneficiaries of Abenomics — plunged to the lowest level since June 2013. Large companies and smaller firms alike forecast that their business will worsen in the next three months.

The falling business sentiment, though still in positive territory, is blamed on growing uncertainties over the global economy, in particular the slowdown in China, and the sudden spike in the yen’s value this year — which in turn exposes the vulnerability of Japan’s economy to fluctuations in overseas demand and currency exchange rates. The inflationary expectations of firms polled in the BOJ survey are also receding, moving away from the BOJ’s 2 percent target.

The BOJ’s three years of maneuvers under Kuroda may underline just how far monetary policies alone can go in turning the economy around. The effects of Abe’s “second arrow” of fiscal stimulus, which has its limits under the nation’s tight fiscal conditions, have been waning, while his promised structural reforms have yet to make a visible impact on the economy. It may be tempting to lay the blame for Japan’s fragile growth elsewhere. But the central bank itself should also stop to think whether its scenario behind the unprecedented monetary stimulus program — including its negative effects — still holds three years on.

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