The Bank of Japan decided last Tuesday to pump more money into the economy, obviously in deference to the growing calls for a looser credit policy from the government and the ruling parties. The decision also reflects a desire to prop up sagging stock prices. Earlier in the week, the Nikkei stock index plummeted to 11,477 points, its lowest level in more than 16 years. The central bank could not ignore warning signals from the market.
Still, the timing of the BOJ action was a bit surprising. The general expectation had been that further monetary steps would be announced about the same time that the government wrapped up an economic package this autumn following the release of second-quarter GDP figures. That scenario had assumed that integrated fiscal and monetary actions would be more effective in supporting and stimulating growth.
The surprise move pushed up the Nikkei average by more than 400 points in a single day. But the rebound has proved short-lived, indicating that the market remains skeptical about the effectiveness of monetary policy. Indeed, there is considerable doubt that further monetary easing will boost the economy. Under the circumstances it is unrealistic to expect monetary measures to stimulate growth.