Japan's dismal returns on printing money

While we sit back and wait for jobs and GDP growth to come back, we can already see what's happened in Japan when they opened the spigots and pushed a policy of easy money. Recent events there offer something to think about the limits of monetary policy in sparking a recovery.

To me it seems odd that printing a money, can create jobs. Via WSJ:

The Bank of Japan announced this year a string of easing measures, from a return to its effective zero-interest-rate policy to several quantitative steps to push more yen out its doors. So far they're not working as hoped. Inflation, at 0.2%, was slightly positive in October, the most recent month for which data are available, but nearly half of the price rise is explained by a hike in cigarette taxes. No one suggests Japan has kicked deflation for good.

As for growth, there's less to the most recent quarter's positive GDP numbers than meets the eye. GDP grew at an annual rate of 4.4% between July and September. Households appear to have front-loaded some of their consumption of cars ahead of the expiration of the Japanese equivalent of America's cash-for-clunkers program. Business investment is still weak.

The problem remains, as always, that no matter how much money the BOJ prints, there simply isn't demand for it in the economy. This is most obvious in the failure of the BOJ's lending program "to support strengthening the foundations for economic growth." The central bank intended to lend three trillion yen ($36 billion) via banks to small- and medium-sized enterprises in high tech or green tech. It's been a flop. In the most recent disbursement, the BOJ found takers for only 46% of the nearly one trillion yen it was willing to lend, and less than half of eligible banks participated.


  1. yup you are right in saying that creating money cannot generate jobs, because when an economy generate new notes or currency then they must have to face inflation, no doubt they get more employment as
    more currency = more investment = more business opportunities = more employment opportunities = more per head income and then more prices of the normal goods available in the market. but if the government control over the upper limit of product prices they can best utilize their resources. this is the only situation in which they can achieve their business goals.

  2. Thanks for your comments. There is little that we can do now, but sit back and watch. Jobs will always come back, and of course Ben and Barry will take credit. But when they say that things are going good, ask yourself, "compared to what?" At this time in history, the Reagan recovery was at 8% growth vs our 3%.


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