Bank of Japan’s impact waning

TOKYO: As Bank of Japan officials prepare to review the effectiveness of more than three years of unprecedented stimulus next month, at least one gauge suggests they are losing clout.

The so-called shadow rate, which takes into account sovereign bond yields to measure the impact of unconventional policy tools like quantitative easing, hasn’t fallen as rapidly as that in Europe, according to a model created by Reserve Bank of New Zealand researcher Leo Krippner. While Krippner says the introduction of negative policy rates and Japan’s flat yield curve has made it harder to calculate, the measure suggests Governor Haruhiko Kuroda is falling behind European Central Bank (ECB) peer Mario Draghi in efforts to do whatever it takes to boost growth and stoke inflation. “For Japan, the shadow rate indicates that monetary policy has eased by less and more slowly,” Krippner said in an e-mail interview. “That’s consistent with Japan adopting easing measures, such as quantitative-and-qualitative easing and its subsequent additions, but not yet generating the 2 per cent inflation target announced on the outset of the policy.”

The BOJ acknowledged doubts over its policies when it took the unprecedented step last month of announcing a comprehensive review for its Sept. 20-21 gathering. The economy has only grown half of the time since Kuroda launched his stimulus in April 2013, and consumer prices have fallen for five straight months to July. While benchmark yields tumbled to a record low of minus 0.3 per cent last month, they have since retraced two thirds of that.

The yen is another headwind, outperforming all its developedmarket peers this year.

Krippner said that shadow rates are estimated from yield curve data, indicating the degree to which medium- and longer-term rates are lower than would otherwise be expected with a near-zero policy setting.