Unconventional monetary policy in Japan 2000-2006

The purpose of this paper is to use other studies to take a look at the unconventional monetary policy of the Bank of Japan during 2000-2006. During that time the Bank of Japan practiced many policies currently being used for example by the European Central Bank, and lessons from that time should be learned during current times. Especially interesting are the transmission mechanisms of how unconventional monetary policy transmits itself into the larger economy. Two transmission methods are found: portfolio rebalancing effect and signaling effect. While there is still no good consensus on which of these had the larger impact and therefore was more important – it is established that the combination of both these allowed for stabilizing results in the case of Japan. Furthermore, lessons from Japan show that in a crisis situation decisive and strong enough approach is needed from the central bank. This thesis also covers lessons from Bank of Japan’s experience with quantitative easing in general and exiting from unconventional monetary methods. Through studies and statements it can be recognized that the quantitative easing program Bank of Japan practiced was successful even though it wasn’t enough to lift the country out of depression