Bank of Japan Suffers Stimulus Fatigue as Policy Costs Mount

Policy debates within the BOJ has shifted toward making the QE programs more sustainable, for policymakers acknowledged it may take longer than expected to reach policy objective as rising costs become “hard to ignore;" possible policy changes may include tweaking the yield-curve control program to allow for a more natural rise in long-term interest rates to ease pressure on banks, and to shift ETF buying toward stocks linked to the Topix index. The policy considerations highlighted growing concerns over unconventional programs’ side effects on both the real economy as well as market disruptions, for the BOJ has become the top shareholder for some big corporations. Despite policymakers’ hesitance to connect social impacts to low interest rates, research by the BIS noted higher saving by indebted Japanese households to meet end-of-life objectives, as income overcomes substitution effects. While concerned about policy sustainability, the BOJ will likely look to prevent an uncontrolled rise in bond yields, but the on-going debates highlighted that QE is not costless, and BOJ officials are forced to re-examine policy path.