Why the Achievements of the Quantitative Easing of the Bank of Japan do not Bring More Significant Benefits to the Japanese Economy?

Two years on, the unprecedented quantitative easing launched by the Bank of Japan has provided mixed results. The reflating effect on the monetary and financial sphere has beaten the wildest expectations: decrease of the real interest rates by 90 bp, depreciation of the effective exchange rate by 30%, increase of the Nikkei index by 130% since November 2012. The inflation rate came back into positive territory by 2013 and inflation expectations have notched up to 1%-1.5%. As regards the real economy, the impact is much less impressive in spite of the return to full employment. More specifically, the softness of the response of exports to the fall of the yen exchange rate is a surprise, which contrary to the moderation of the corporates’ fixed investment and the households’ consumption cannot be explained by the remaining “deflationary spirit”. Those contrasting developments question how full the implementation of Abenomics (i.e. each of the « three arrows ») has been so far but also, more fundamentally, if the priority given to the management of inflation expectations is not drawing too much political capital.