Throughout 2016, economists have been asking if Japan’s shocking decision to introduce negative interest rates has been beneficial.
In January the Bank of Japan adopted its negative interest-rate policy, which in effect penalises banks for hoarding too much money.
This dramatic and unconventional move was part of the Bank’s plan to support Abenomics, the programme devised by Prime Minister Shinzo Abe to stimulate the economy.
The negative interest rate policy seemed like a desperate measure and it came in for a lot of criticism.
The goal was two-fold: firstly, to encourage the banks to lend more money to their customers, especially to small and medium sized business. And secondly, to produce a more normal rate of inflation: the target inflation rate is two percent.
Has it worked?
Kwok Chern-Yeh, head of Japanese equities at Aberdeen Asset Management, told the website FT Advisor that it does not seem to have been successful in increasing lending. “Instead, the Bank of Japan’s move simply hurt banks as their lending spreads narrowed,” he said.
When it comes to inflation, the actions of the central bank appear to have had little measurable benefit.
As the Japan Times points out, Japan’s core consumer price index, excluding volatile fresh food prices, fell for the seventh straight month in September, down 0.5 percent from a year earlier.
This led to something resembling an apology from the governor of the Bank of Japan, Haruhiko Kuroda.
“It is regrettable that we were not able to realise two percent inflation within two years,” Mr Kuroda told a news conference at the start of this month.
So has Abenomics fizzled out?
That was a question posed on the website of East Asian Forum. They approached the respected economics professor Kazuo Ueda from the University of Tokyo. His conclusion is that “after more than three years of Abenomics, it is almost an acknowledgement that the stimulus so far has failed to work.”
However, Professor Ueda holds some optimism. “In the near term,” he says, “a more solid expansion in the global economy, especially in the United States and Asia, would relieve pressure on the yen and the Bank of Japan. In the medium term, a two per cent inflation rate, if achieved, could animate business spirits and trigger a substantial rise in investment and growth. But for now we will just have to wait and see.”