Is the Bank of Japan's monetary policy heading down a dead end

The Bank of Japan is insisting on its aggressive monetary policy and its governor, Haruhiko Kuroda, promised on Monday that the Bank would continue its aggressive monetary policy until the inflation target of 2.0% is achieved. The inflation rate of last month has not been released yet, but according to the forecast, the inflation rate is expected to be at -0.4%, which is equal to the inflation rate in July 2016. If the forecast is right, the inflation rate in Japan will stay in the negative zone for five straight months, showing the ineffectiveness of the central bank's policies.

Such low inflation rate has been a long problem in Japan, according to its economic problems and its cultural facts. The Prime Minister of Japan, Shinzo Abe, was elected because of his "Abeconomics", as he promised monetary easing, fiscal stimulus and structural reforms. However, so far, it has not shown much success yet. Moreover, Japan recorded its government debt reached 229.20 percent of its GDP in 2015, which was beyond the danger level that the government has to reduce its spending and lower its debt to GDP ratio. This could let the Japanese economy lose the stimulus from the fiscal policies. While the structural reform is complicated and takes much longer time to finish and make an impact on the economy, the only hope of the Japanese economy seems to depend on the monetary policy, this is why the Bank of Japan is so insisting on its aggressive monetary policy.

However, though many countries have been using aggressive monetary policies through the first half of 2016, the effectiveness of these policies seems poor. The reason is the increasing uncertainty in the markets and the current extremely low interest rate affecting the effectiveness of lowering base rates further. The problem facing the Bank of Japan as well as many other central banks, including the European Central Bank, is continuing the current monetary policy may not stimulate the economy, but stopping such policy could actually hit the markets. Therefore, they are forced to insist on their current aggressive monetary policies, maybe they are not achieving anything, but doing nothing could hurt more.