BOJ’s Wakatabe warns that the risk of “Japanification” hasn’t yet disappeared

Despite a rapid rise in inflation, Bank of Japan (BOJ) Deputy Governor Masazumi Wakatabe warned central banks about a continuing risk of so-called “Japanification”, or economic stagnation. 

Wakatabe is an active advocate of aggressive monetary policy easing. According to him, “Japanification” still endangers the global economy. A neutral interest rate, at which the monetary policy neither stimulates nor limits economic growth, might be affected by various factors. 

Japan’s economy has been in deflation for a long time. As Wakatabe stated, this experience has shown that it’s extremely difficult to get rid of the fear of economic stagnation.

In 2013, Japan’s central bank launched a massive program of purchasing assets in order to support the country's economy and beat deflation that lasted for nearly two decades. However, these measures didn’t help to bring inflation to the target level of 2%. As a consequence, the Bank of Japan switched to a negative interest rate policy in 2016.

In the current economic situation, the bank continues to adhere to this strategy, even though inflation has already exceeded the target level due to rising commodity prices. The bank's policy is mostly driven by its experience of economic stagnation.