BoJ pushing on a string as economy needs tow
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.