# Quantitative easing begins in Japan

Japan becomes the laboratory for the post-crash toolkit: zero rates, reserve targeting, stock purchases, credit expansion, Werner’s QE language, and the later global adoption of quantitative easing.

*This story parallel: The world trade and money order*
*This story part of: Princes of the Yen: Japan built, bubbled, and broken*
*This story part of: Land and resources*

## 19 April 1995 — Yen hits historic high of 79.75 per dollar

Despite unprecedented intervention, the yen rose 20 percent from January to April 1995 and hit a historic high of 79.75 to the dollar on April 19, 1995, which the author attributes to the BoJ's sharp reduction of credit creation.

> "During the months from January to April 1995, the yen rose by 20 percent, hitting a historic high of ¥79.75/$ on April 19, 1995."
> — Princes of the Yen

## c. 1995 — Richard Werner coins 'quantitative easing'

The German economist Richard Werner introduces the term quantitative easing (ryoteki kanwa) in Japan, arguing the central bank should expand credit creation directly rather than only cut interest rates.

## c. 1995 — Werner coins 'quantitative easing' as a way out

Richard Werner coined the term quantitative easing in Japan, arguing the central bank should expand credit creation directly rather than only cut interest rates. He meant something broader than what the term later came to describe. The Bank of Japan formally adopted a policy under that name in March 2001, the first major central bank to do so.

## 1996 — Greenspan's irrational exuberance speech

In 1996 Fed chairman Alan Greenspan gave his famous speech on irrational exuberance, publicly suggesting he wanted to slow the economy even as the Fed kept increasing credit creation.

> "Thus Greenspan, through his interest rate policies, has publicly given the impression that he wanted to slow the economy most of the time from the mid-1990s onward, such as with his famous 1996 speech on “irrational exuberance.”"
> — Princes of the Yen

## 1997 — New Bank of Japan Law proposed

The new Bank of Japan Law was proposed in 1997 as part of Prime Minister Hashimoto's administrative reform program. Deputy governor Toshihiko Fukui lobbied press and politicians in its favor.

> "The new Bank of Japan Law was proposed in 1997 as part of Prime Minister Hashimoto’s administrative reform program."
> — Princes of the Yen

## 1998 — Bank of Korea reflates sharply

In mid-1998 the Bank of Korea increased credit creation by the largest amount in twenty-five years, and Korean growth expanded sharply in the first quarter of 1999 with double-digit industrial production gains by mid-1999.

> "Credit creation by the Bank of Korea in mid-1998 shot up by the biggest amount in twenty-five years—quite parallel to the BoJ’s reflation. As a result, Korean economic growth expanded sharply in the first quarter of 1999."
> — Princes of the Yen

## 1998 — Fukui resigns with Governor Matsushita

Toshihiko Fukui, appointed deputy governor in December 1994 as long planned, had to resign together with Governor Matsushita in early 1998, after which he vied to succeed interim Governor Hayami.

> "Although Fukui had to resign together with governor Matsushita in early 1998, he had since been vying to take over from interim Governor Hayami to resume his rule."
> — Princes of the Yen

## 1998 — Hayami becomes BoJ governor after 1998 resignation scandal

Masaru Hayami stepped in as Bank of Japan governor in early 1998 after deputy governor Fukui and governor Matsushita resigned over a scandal.

> "Masaru Hayami had stepped in as governor when deputy Fukui and governor Matshushita had to resign in early 1998 due to a scandal."
> — Princes of the Yen

## March 1998 — BoJ sharply boosts credit creation

In March 1998 the Bank of Japan suddenly boosted credit creation to its highest level since January 1974, which was followed by the sharp economic recovery and stock market rise of 1999 before the taps were turned off again.

> "In March 1998, the Bank of Japan suddenly boosted credit creation sharply. Our index reached the highest level since January 1974, when the BoJ was supplying the funds for the 1970s real estate bubble."
> — Princes of the Yen

## September 1998 — Mahathir imposes capital controls in Malaysia

In September 1998 Malaysian leader Mohammad Mahathir imposed controls on short-term capital movements, stabilizing the exchange rate while the central bank stepped up credit creation and the government cleaned up bank balance sheets without IMF-style reforms.

> "But in September 1998, Mahathir imposed controls on short-term capital movements and hence stabilized the exchange rate. Simultaneously, his central bank stepped up credit creation and the government implemented a program to clean up the balance sheets of banks."
> — Princes of the Yen

## 1999 — Bank of Japan withdraws credit in 1999

The Bank of Japan sharply reduced its credit creation in 1999, actively withdrawing credit for most of the year; the yen returned toward 100 per dollar and the 1999 recovery stalled in 2000.

> "The Bank of Japan reduced its credit creation sharply in 1999, actively withdrawing credit from the economy for most of the year. The yen moved back close to ¥100/$, and a year later the recovery of 1999 stalled."
> — Princes of the Yen

## February 1999 — Zero interest rate policy adopted

In February 1999 the Bank of Japan let the overnight call rate fall to 0.1 percent, a stance called the zero interest rate policy, after cutting it to 0.33 percent in October 1998.

> "Three years later, in October 1998, the Bank of Japan lowered the call rate to a new low of 0.33 percent. In February 1999, it fell to 0.1 percent—at the time called a “zero interest rate policy.”"
> — Princes of the Yen

## February 1999 — Zero interest rate policy introduced

In February 1999 the Bank of Japan guided the overnight call rate down to 0.1 percent, a stance dubbed the zero interest rate policy, after cutting it to a record low 0.33 percent in October 1998.

> "In February 1999, it fell to 0.1 percent—what at the time was called a “zero interest rate policy.”"
> — Princes of the Yen

## 2000 — Hayami tightens monetary policy as the economy recovers

In May 2000 Governor Hayami argued that a recovery might weaken pressure for structural reform, which the author cites as his justification for tightening monetary policy again in 2000.

> "To this type of argument, Governor Hayami countered in May 2000: “When the economy recovers, as is now happening, it might well be the case that efforts for structural reform might be neglected due to a sense of security.”39 That was his justification for tightening monetary policy again in 2000."
> — Princes of the Yen

## March 2001 — Bank of Japan announces quantitative easing

The Bank of Japan officially announced quantitative easing in March 2001, and in May 2001 significantly boosted its credit creation in a policy rivaling its record 1998 reflation.

> "We saw that in May 2001, later than its March 2001 official announcement of “quantitative easing,” the Bank of Japan once again boosted its credit creation significantly."
> — Princes of the Yen

## 19 March 2001 — Bank of Japan adopts quantitative easing

On March 19, 2001 the Bank of Japan performed a sudden policy U-turn and officially adopted quantitative easing, a policy it had claimed for a decade was impossible to implement.

> "The central bank performed a sudden policy U-turn on March 19, 2001, now officially pursuing what it calls a policy of “quantitative easing” despite the fact that it had claimed for a decade that such a policy was impossible to implement."
> — Princes of the Yen

## 19 March 2001 — Bank of Japan announces reserve targeting ('quantitative easing')

On March 19, 2001 the Bank of Japan announced it would switch from targeting the overnight call rate to targeting the quantity of banks' reserve deposits, a policy commonly called quantitative easing; its actual credit creation nevertheless fell in the following months.

> "On 19 March 2001, the Bank of Japan announced that it was switching from a policy of targeting the overnight call rate (they had already reached levels below 0.01 percent) and instead target the quantity of banks’ reserve deposits with the central bank (Bank of Japan [2001])."
> — Princes of the Yen

## 19 March 2001 to 2006 — Bank of Japan launches quantitative easing

The Bank of Japan becomes the first major central bank to adopt an explicit quantitative easing policy, targeting the level of bank reserves after interest rates hit zero.

## May 2001 — Bank of Japan reflates under Koizumi

In May 2001 the Bank of Japan's purchases of commercial paper rose over 500 percent year on year and bond purchases increased rapidly, pushing its liquidity injections back toward the levels of March 1998.

> "That is why the princes switched on the printing presses again. In May 2001, purchases of commercial paper rose by over 500 percent YoY. Bond purchases increased rapidly."
> — Princes of the Yen

## May 2001 — Fukui's failed bid for the BoJ governorship

In May 2001 Toshihiko Fukui, then head of the Fujitsu Research Institute, staged an attempt to take over from Governor Hayami as Bank of Japan governor, but Hayami refused to resign.

> "In May 2001, in the same week this book was published in Japanese, Toshihiko Fukui, head of the Fujitsu Research Institute, staged an attempt to take over from Governor Hayami as the new governor."
> — Princes of the Yen

## June 2001 — BoJ shifts to expanding the quantity of credit

In June 2001 the Bank of Japan changed monetary policy again and sharply increased the quantity of its credit creation, which contributed positively to the economy in 2002 after the slump of 2001.

> "In June 2001, the central bank changed its monetary policy once more and sharply increased the quantity of its credit creation.17"
> — Princes of the Yen

## 2002 — ECB orders record shrinkage of Bundesbank credit creation

In 2002 the ECB ordered the Bundesbank to shrink its credit creation by record amounts; as money circulating in the economy shrank, demand fell and Germany moved into recession.

> "It ordered the Bundesbank to shrink its credit creation by record amounts in 2002. As the amount of money circulating in the economy shrank, demand fell and the economy moved into recession."
> — Princes of the Yen

## 2002 — Surprise recovery in late 2002

Following the Bank of Japan's renewed credit creation of 2001 and the usual time lag, industrial production, consumption, and real GDP staged a recovery by late 2002 that surprised most observers.

> "Given the normal time lag, this meant that by late 2002, industrial production, as well as domestic consumption, and hence real GDP, staged a recovery that surprised most observers."
> — Princes of the Yen

## September 2002 — BoJ announces stock purchases; Yanagisawa replaced by Takenaka

In September 2002 the Bank of Japan announced it would be prepared to purchase stocks from banks, a move that embarrassed Financial Services Minister Yanagisawa, who was sacked and replaced by Heizo Takenaka, a supporter of the bank's foreclosure plan.

> "He paid for it with his job: in September 2002, the central bank surprised the world with its announcement that it would be prepared to purchase stocks from banks—ostensibly in order to help them."
> — Princes of the Yen

## 2003 — Toshihiko Fukui appointed Bank of Japan governor

Toshihiko Fukui was appointed governor of the Bank of Japan in 2003, despite Prime Minister Koizumi's earlier contrary statements, which the author cites as proof of the princes' power.

> "The fact that he was duly appointed, despite contrary statements by the prime minister and by an administration famous for surprise appointments, merely serves to demonstrate the extent of the power wielded by the princes."
> — Princes of the Yen

## 25 November 2008 — The Federal Reserve launches quantitative easing

The Federal Reserve began buying large amounts of mortgage-backed securities and Treasury debt to support the economy. Quantitative easing became a standard tool of central banks after the crisis.

## 22 January 2015 — European Central Bank starts quantitative easing

Under Mario Draghi the ECB begins a bond-buying program to fight deflation in the euro zone, extending quantitative easing to Europe years after Japan and the United States.