The Effectiveness of Non-traditional Monetary Policy Measures : The Case of the Bank of Japan

This paper summarizes non-traditional monetary policy measures adopted by the Bank of Japan (BOJ) during the last two decades and by other G7 central banks since the start of the current global financial turmoil and analyzes the effectiveness of such measures. The paper begins with a typology of policies usable near the zero lower bound on interest rates (ZLB). They are:(i) forward guidance of future policy rates;(ii) targeted asset purchases;(iii) and quantitative easing (QE). Using this typology, I review the measures adopted by the BOJ and other central banks. I then offer a news analysis of the effects of the measures adopted by the BOJ on asset prices, comparing them with those adopted by the Fed. Many of the measures, with the exception of strategy (iii), are shown to have moved asset prices in the expected directions. Another exception is that most of the monetary easing measures failed to weaken the yen. Despite some effects on asset prices, however, the measures have failed to stop the deflationary trend of the Japanese economy clearly. I discuss some possible reasons for this and more general implications for monetary policy.Revised in October 2011; subsequently published in the Japanese Economic Review, Vol. 63, No.1, pp. 1-22, March 2012