Japanese Postmonetarism: The First Quarter of the 21st Century

Giorgi Kepuladze  Tamila Arnania-Kepuladze

Journal number 2 ∘ Giorgi Kepuladze ∘ Tamila Arnania-Kepuladze ∘
Japanese Postmonetarism: The First Quarter of the 21st Century

DOI kodi: 10.52340/ekonomisti.2026.02.09

Expanded Summary

In the 21st century, Japan entered a period of stagnation. From 1993 to 2003, the average economic growth rate was slightly more than 1%, and since 1998, the inflation rate has been negative. By the end of 2003, the consumer price index was 3% lower than the 1997 level, and nominal GDP had decreased by 4% from 1997 to 2002.

In this situation, the explanation of the deflation phenomenon became relevant for Japanese economic scientists, and the idea arose that deflation was caused by errors in monetary policy and problems in the financial sector. As a result, the Bank of Japan institutionalised the use of unconventional instruments in its monetary policy. This began a new stage of Japanese monetarism - postmonetarism.

At this stage, the goal of Japanese monetarism was not only to establish control over money but also to establish sustainable expectations, incentives, and balance sheet stability.

The paper divides the path taken by Japanese monetarism in the first quarter of the 21st century into five periods. The basis for this periodisation is the changes in Japanese monetary policy that have shaped the Japanese version of post-monetarism. Those five periods include:

1. 2001-2006. This is the initial stage of Japanese post-monetarism. During this period, the Bank of Japan (BoJ) first used unconventional methods to combat deflation and introduced the "Quantitative Easing" (QE) policy, the purpose of which was to stop deflation, stimulate demand and reduce long-term interest rates.

2. 2006-2013. Since 2006, that is, after the exit from the quantitative easing (QE) policy, a new stage began in Japanese monetarism, which is often considered as a period of pursuing a policy that is different from traditional monetary policy and is relatively "soft". In October 2010, the Bank of Japan (BoJ) resorted to a new policy, which was called the "Comprehensive Monetary Easing Policy" (CME).

3. 2013-2016. This period marks the beginning of a new phase of Japanese monetarism, which is associated with the “Quantitative and Qualitative Easing” (QQE) policy developed and implemented by the Bank of Japan. This phase is characterised by the addition of psychological (behavioural) and institutional approaches to quantitative measures.

4. 2016–2022. In September 2016, the Bank of Japan (BoJ) introduced a new monetary “Yield Curve Control” (YCC) policy, according to which the central bank controlled the interest rate not only in the short term, but also in the long term.

5. 2023–2025. In 2023-2025, the side effects of the monetary policy implemented in 2016-2022 are assessed.

Modern Japanese monetarism retains the hallmarks of classical monetarism, such as price stability and monetary aggregate control, but at the same time, it uses institutional adjustments aimed at maintaining credit and financial stability.

Unlike classical monetarism, Japanese monetarism has chosen a flexible policy that uses negative interest rates and other unconventional measures to combat deflation and stimulate economic growth.

In the first quarter of the 21st century, new practical steps are being taken to influence the results of economic activity through monetary policy, as well as an analysis of the steps already taken in this direction, an assessment of the results achieved, and the setting of new goals.

Contemporary academic debate emphasises that monetary policy in Japan should be considered in close conjunction with fiscal policy and structural reforms, and its success is measured not only by inflation dynamics, but also by the ability to restore sustainable domestic demand and the financial health of the economy.

EKONOMISTI The international scientific and analytical, reviewed, printing and electronic journal of Paata Gugushvili Institute of Economics of Ivane Javakhishvili Tbilisi State University

DOI: 10.52340/EKONOMISTI DOI: 10.36172/EKONOMISTI E ISSN 2346-8432 Print ISSN 1987-6890	Journal number 2 ∘ Giorgi Kepuladze ∘ Tamila Arnania-Kepuladze ∘ Japanese Postmonetarism: The First Quarter of the 21st Century DOI kodi: 10.52340/ekonomisti.2026.02.09 Expanded Summary In the 21st century, Japan entered a period of stagnation. From 1993 to 2003, the average economic growth rate was slightly more than 1%, and since 1998, the inflation rate has been negative. By the end of 2003, the consumer price index was 3% lower than the 1997 level, and nominal GDP had decreased by 4% from 1997 to 2002. In this situation, the explanation of the deflation phenomenon became relevant for Japanese economic scientists, and the idea arose that deflation was caused by errors in monetary policy and problems in the financial sector. As a result, the Bank of Japan institutionalised the use of unconventional instruments in its monetary policy. This began a new stage of Japanese monetarism - postmonetarism. At this stage, the goal of Japanese monetarism was not only to establish control over money but also to establish sustainable expectations, incentives, and balance sheet stability. The paper divides the path taken by Japanese monetarism in the first quarter of the 21st century into five periods. The basis for this periodisation is the changes in Japanese monetary policy that have shaped the Japanese version of post-monetarism. Those five periods include: 1. 2001-2006. This is the initial stage of Japanese post-monetarism. During this period, the Bank of Japan (BoJ) first used unconventional methods to combat deflation and introduced the "Quantitative Easing" (QE) policy, the purpose of which was to stop deflation, stimulate demand and reduce long-term interest rates. 2. 2006-2013. Since 2006, that is, after the exit from the quantitative easing (QE) policy, a new stage began in Japanese monetarism, which is often considered as a period of pursuing a policy that is different from traditional monetary policy and is relatively "soft". In October 2010, the Bank of Japan (BoJ) resorted to a new policy, which was called the "Comprehensive Monetary Easing Policy" (CME). 3. 2013-2016. This period marks the beginning of a new phase of Japanese monetarism, which is associated with the “Quantitative and Qualitative Easing” (QQE) policy developed and implemented by the Bank of Japan. This phase is characterised by the addition of psychological (behavioural) and institutional approaches to quantitative measures. 4. 2016–2022. In September 2016, the Bank of Japan (BoJ) introduced a new monetary “Yield Curve Control” (YCC) policy, according to which the central bank controlled the interest rate not only in the short term, but also in the long term. 5. 2023–2025. In 2023-2025, the side effects of the monetary policy implemented in 2016-2022 are assessed. Modern Japanese monetarism retains the hallmarks of classical monetarism, such as price stability and monetary aggregate control, but at the same time, it uses institutional adjustments aimed at maintaining credit and financial stability. Unlike classical monetarism, Japanese monetarism has chosen a flexible policy that uses negative interest rates and other unconventional measures to combat deflation and stimulate economic growth. In the first quarter of the 21st century, new practical steps are being taken to influence the results of economic activity through monetary policy, as well as an analysis of the steps already taken in this direction, an assessment of the results achieved, and the setting of new goals. Contemporary academic debate emphasises that monetary policy in Japan should be considered in close conjunction with fiscal policy and structural reforms, and its success is measured not only by inflation dynamics, but also by the ability to restore sustainable domestic demand and the financial health of the economy.