A comprehensive review of the Bank of Japan’s monetary policy that Gov. Haruhiko Kuroda promised at its Sept. 20-21 policy board meeting has led to various speculation over the central bank’s next move as well as discussions about pros and cons of the “unprecedented” monetary stimulus pursued by Kuroda since 2013 and the negative interest rate policy it introduced in February. Some media reports suggest that the BOJ plans to conclude that the policy to charge banks fees for keeping their money in their central bank accounts had benefits for the economy that outweigh the costs. Kuroda himself has also indicated that he does not have in mind scaling back the monetary stimulus as a result of the policy review.

The policy review should not be an occasion to justify further easing by the central bank to achieve its target of a 2 percent annual inflation at all costs, but an opportunity for objective assessment of what it has done to the economy — both good and bad — and change course where necessary.

Despite more than three years of Kuroda’s monetary “bazooka” as a key component of Prime Minister Shinzo Abe’s trademark economic policy, Japan’s economic growth remains uneven and fragile, and the 2 percent inflation — which the central bank was initially confident of achieving within two years — is still nowhere in sight and keeps being pushed back. The central bank needs to start by realizing that its policy is no magic wand to save the economy from all its troubles.

Aimed at busting the deflation that has long gripped the nation, the BOJ’s massive asset purchase program is based on the theory that by pumping more money into the system, prices will go up and the economy will pick up. The experience since 2013 suggests that things may not go that simply. The BOJ’s ultra-easy monetary policy led the yen’s steep fall against the dollar, which caused the profits of export-oriented companies to surge and share prices to soar. The weak yen pushed up prices by inflating the cost of imports, and led to a sharp increase in inbound tourism by making vacations in Japan cheaper.

But since the April 2014 consumption tax hike to 8 percent, the underlying weakness in consumer spending, which accounts for 60 percent of the gross domestic product, has weighed heavily on the economy’s growth. Households placed restraints on their spending as prices rose faster than wage gains, and with subsequent worldwide declines in crude oil prices, inflation in Japan went down to anemic levels. Coupled with the effects of an upsurge in the yen’s exchange rate in recent months, the nationwide consumer price index has declined on a year-on-year basis for five months in a row to July, with the margin of the fall in the latest month the steepest since March 2013 — before Kuroda embarked on the monetary stimulus. While workers’ wages have been rising on inflation-adjusted net basis over the six months to July, per-household monthly consumption remains lower than a year ago since September, except for an uptick in February that was attributed to the leap year effect.

There are complicated factors that keep prices from rising. The BOJ and the government likes to attribute it mostly to the fall in energy costs. Others point to the aging of Japan’s society and decline in the working-age population, as well as the continuing caution among Japanese businesses regarding wage hikes for employees. There are views that policies aimed at raising prices discourage spending by consumers, who tend instead to squirrel away their money for “rainy days.” At the very least, monetary easing does not appear to be a panacea under the current economic climate.

When its 2 percent inflation target appeared to be in doubt, the BOJ has so far responded by expanding its asset purchase program. As the program appeared to be nearing its limits, the central bank resorted to the negative interest rate policy in February. In a speech he delivered earlier this month, Kuroda dismissed views that the BOJ has exhausted its policy options and said he has “ample room” for more easing — either in pushing interest rates further into negative territory or expanding asset purchases, although he acknowledged the “costs” of its aggressive monetary stimulus.

Media reports this week indicate that the BOJ will likely conclude that the economic benefits of the controversial step taken in February — further cuts to the interest rates and more favorable conditions for people and businesses to borrow money to spend and invest more — outweigh the costs such as the negative impact on the earnings of financial institutions from the fall in lending rates and lower yields on pension funds.

Whatever its conclusion may be, the BOJ is urged to candidly assess what its monetary policy over the past 3 1/2 years has entailed — including its impact on the mindset and behavior of consumer and businesses — and think whether its policies are still the right path to take.

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