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BOJ Stimulus Impotence Threatens Inflation Aim: Chart of the Day

Bank of Japan
A pedestrian waits to cross a road in front of the Bank of Japan headquarters in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

The Bank of Japan is getting less and less bang for its yen as it expands monetary-stimulus programs aimed at boosting annual inflation to 2 percent.

The CHART OF THE DAY shows the so-called money multiplier fell in January to the lowest since 2003, when data became available, signaling the amount of money in the economy dropped relative to funds provided by the BOJ. The ratio of outstanding bank lending to customer deposits is also tracked as it holds near an all-time low. The lower panel shows the yield on Japan’s 10-year government note struggled to maintain gains since dropping to a record 0.315 percent on April 5, the day after the BOJ expanded monthly bond purchases.

Japanese non-financial companies held 224 trillion yen ($2.2 trillion) in cash as of Sept. 30, according to central bank data, an amount bigger than Italy’s gross domestic product. A government report from Tokyo on Feb. 17 showed fourth-quarter growth was weaker than the most pessimistic estimate of economists surveyed by Bloomberg News.

“The BOJ’s quantitative easing isn’t very meaningful,” said Akira Takei, the Tokyo-based chief fund manager for global bonds at Mizuho Asset Management Co., which oversees the equivalent of $39 billion, referring to the central bank’s bond buying. “Borrowing would increase if companies can expect to make money from capital spending, but it’s not the case now.”

The central bank in April abandoned interest rates as its main policy tool and is now increasing the monetary base by 60 trillion to 70 trillion yen a year. Its efforts may be undermined if banks lend less with the Basel Committee on Banking Supervision leading global watchdogs as they seek to bolster lenders’ balance sheets after the global financial crisis that started in 2007. The money multiplier is derived by dividing the money supply by the monetary base.

“The idea that an increase in the monetary base leads to more lending is a textbook theory when there were few financial regulations,” said Izuru Kato, the president of Totan Research Co., a unit of money-market broker Tokyo Tanshi Co. “That isn’t the case anymore.”

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