The Bank of Japan (BoJ) has dialled back on its expansionary "helicopter money" policy - constant hoovering up of Japanese government bonds (JGB).
(Helicopter money is a term defined by many banks and analysts as central banks injecting cash directly into the real economy).
The country was hoping that some of the cash paid out for purchase of bonds will ultimately find its way into consumers' pockets and corporates' treasury, and they will in turn spend it on the high street or invest in factories and infrastructure.
Thus giving the economy a boost.
But it would seem that in the case of Japan, monetary policy has run its course.
And the country is a good case for illustrating the limitations of single-minded recourse to monetary policy in getting sustained growth.
The predicament of Japan is quite the opposite of India's.
With the recent setting up of the Monetary Policy Committee, and a slew of dues waiting to be paid out on account of One Rank One Pension, the Seventh Pay Commission, pension, crop insurance, Direct Benefit Transfer, sugarcane, etc, the latter wants to push inflation. The former to dampen it.
Japan is a country stuck in decades-long deflation, trying to stoke up inflation to a minimum of 2 per cent.
But recent BoJ actions, for instance to not expand JGB purchases (call it quantitative easing, Japanese style) from the current ¥80 trillion annually, have put an end to use of monetary policy as the preferred tool for getting that much needed stimulus.
|BoJ governor Haruhiko Kuroda.|
It has failed to meet its own "price stability target of 2 per cent" set three years ago.
But why has Japan run through its bag of monetary tricks in the first place?
(Even though it has a negative interest rate and can borrow at near zero interest, and ironically probably even get paid by investors to borrow!)
The simple reason is that BoJ has already swept up and now owns more than a third of all outstanding government bonds, with its own balance sheet holding 85 per cent of the gross domestic product (GDP) of Japan! Or around $5 trillion.
So what happens now?
Since no amount of monies airdropped by a squadron of BoJ drones is going to move the Japanese GDP or inflation needle northwards, and not much can be said for its 'structural' tinkering, mainly regulatory and reforms, thus far.
The last resort is a good "supply side" hoist - tax cuts, subsidies, tax rates and the like.
And if in the meantime this too does not work, then the Japanese situation provides a great economic lab where economics can be rewritten.
Are we up to grabbing front-row seats?