Makoto Sakurai: An essay on Japan's monetary policy experience and lessons

Article by Mr Makoto Sakurai, Member of the Policy Board of the Bank of Japan, 6 November 2020.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I. Introduction

Japan's monetary policy has been consistently accommodative over the past three decades. However, especially in times of global economic shocks, there have been cases when the intended policy effect did not materialize due to differences with macroeconomic policies in other countries. In what follows, we look back at the spillover effects of monetary policies abroad and implications for the conduct of monetary policy in Japan.

II. Relationship between Money Demand and Supply and Economic Activity

Monetary policy is carried out by central banks in order to affect the real economy through private financial institutions as well as financial and capital markets.
In general, monetary policy is effective when the following conditions hold:

(1) The relationship between the monetary base and the money stock is stable (i.e., the money multiplier is stable).