BoJ push­ing on a string as econ­omy needs tow

The Pak Banker - - COMPANIES/BOSS -

Just as the Bank of Ja­pan most needs to re­vive a con­tract­ing econ­omy, the ef­fec­tive­ness of its mon­e­tary pol­icy is at a record low. The money mul­ti­plier, a gauge of ac­tiv­ity gen­er­ated when the cen­tral bank eases, fell to 3.92 last month, the low­est in data dat­ing back to 2003. That's even as BoJ debt pur­chases of as much as 12 tril­lion yen ($97 bil­lion) a month caused the mon­e­tary base to bal­loon about 150 per­cent. The phrase "push­ing on a string" was adopted dur­ing the 1930s Great De­pres­sion to de­scribe the dif­fi­culty in re­viv­ing de­mand with fund in­jec­tions.

"Money isn't flow­ing into the real econ­omy, it's just mov­ing be­tween the BoJ and banks as Ja­panese gov­ern­ment bonds are trans­ferred to the BoJ's ex­cess re­serves," said Taka­fumi Ya­mawaki, the chief rates strate­gist in Tokyo at JPMor­gan Chase & Co. "The main spillover ef­fect from the un­prece­dented eas­ing is to lower long­bond yields and a weaker yen."

The money mul­ti­plier is de­rived by di­vid­ing the money stock rep­re­sent­ing funds that are cir­cu­lated in the econ­omy by the mon­e­tary base, which is the liq­uid­ity the BoJ pumps into the fi­nan­cial sys­tem.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.