Japan’s Latest Bold—and Desperate—Experiment in Monetary Policy

Japan, a nation often bound by tradition, has been wildly unconventional when it comes to monetary policy. In the first major economy in the postwar era to grapple with deflation and a pronounced downshift in long-run growth, policymakers have had little choice but to get creative. The Bank of Japan was the first to take interest rates to zero and, when that didn’t work, pioneered quantitative easing in 2001. Now the central bank has again embarked on a daring new experiment: driving certain interest rates higher.

After years of trying to spark economic growth by bringing down both short-term and long-term interest rates, the Bank of Japan in recent weeks has been moving to lift yields on government bonds, particularly the super-long-dated ones. In normal times, such a maneuver might be construed as monetary tightening. But BOJ Governor Haruhiko Kuroda has continually stressed that the bank is very much in easing mode. He said last month that the bank “will not hesitate to add stimulus” if needed, and a number of forecasters expect that he and fellow board members will cut the bank’s short-term policy rate—now at negative 0.1%—on Oct. 31.