There are no signs that share prices will turn downward anytime soon. At the Tokyo Stock Exchange (TSE), the Nikkei Index of 225 selected issues closed up nearly 400 points on Nov. 7 from the previous day at 22,937.60, its highest daily ending point in 25 years and 10 months. The economy has been growing for the second longest period in the postwar era even though few consumers feel the expansion.
Nevertheless, there are no signs that the Bank of Japan (BOJ) will end its unprecedented ultra-easy money policy in the foreseeable future.
In contrast, countries in Europe and North America are normalizing their respective monetary policies that had been focused on responding to crises. As a result, a gap between the BOJ's monetary policy and those adopted by central banks in the West is only widening.
The BOJ has failed to normalize its monetary policy because the central bank is sticking to its goal of raising the annual inflation rate to 2 percent.
The country's inflation rate is currently less than 1 percent a year. In its latest consumer price forecast, the BOJ predicts that consumer prices will rise 0.8 percent this fiscal year, a downward revision from its 1.1 percent forecast released this past July.
The BOJ views it as difficult to achieve the 2 percent inflation rate and stably maintain it at that level even in fiscal 2019. Therefore, the BOJ will maintain extremely low interest rates, which are at almost zero, over a considerably long period. One cannot help but worry about the harmful effects of the extremely low interest rates.
Such low interest rates could adversely affect the management of commercial banks, especially local banking institutions. A report issued by the Financial Services Agency states that commercial banks tend to increase their loans for risky securities and real estate transactions while their income from interest on loans they extend to businesses and individuals has decreased.
It is a concern that the current situation could cause society as a whole to firmly assume that interest rates will no longer rise.
The government's issuance of bonds and the transactions of securities and real estate are conducted based on the assumption that the BOJ will continue its ultra-credit easing policy. As soon as the central bank shows signs that it will begin to normalize its monetary policy, it could cause violent repercussions in the market.
It is worrisome that share and real estate prices rose as a result of a kind of bubble and that almost no countermeasures can be taken against the possible bursting of the bubble.
Putting these concerns aside, it is only natural to consider harmful effects of prolonged unprecedented policies.
Nevertheless, BOJ Gov. Haruhiko Kuroda would not give a clear reply to questions about potential risks involving the prolonged ultra-easy money policy at news conferences. He only says, "To achieve the goal of stabilizing the inflation rate at 2 percent at the earliest date possible, we'll patiently continue our current credit easing policy."
It is wrong to believe that all is fine if the inflation rate rises to 2 percent. The public would be forced to pay the price for such a "penny-wise, pound-foolish" policy in the long term.