Monetary policy and Interest rates in Japan : Political interactions and societal impacts during 2012 – 2025
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During 2012-2025, Japan carried out perhaps the largest monetary policy experiment in modern central banking history. This thesis examines the Bank of Japan's (BOJ) massive, unprecedented implementation in unconventional monetary policy (Quantitative and Qualitative Easing, Negative Interest Rate Policy, Yield Curve Control) through three interconnected research questions addressing the policy's evolution, political-BOJ interactions, and societal consequences of those policies.
The study adopts a qualitative single-country case study design, building on Historical Institutionalism framework, the Principal-Agent theory and a Distributional Consequences approach. Evidence is drawn from qualitative content analysis and documentary analysis of BOJ policy meeting minutes, governor speeches, the 2013 Joint Statement, and IMF reports during the study period.
The thesis reaches three findings. Japan's monetary policy from 2012 to 2025 evolved primarily through path dependency, with each failure to reach the 2% inflation target resulting in greater commitment rather than a changing framework. Second, the political relationship between the BOJ and successive governments is best described as constructed alignment where the Shinzo Abe government reshaped the BOJ's effective goal independence through agent selection, institutional contracting, and normative pressure, all within the formal wording of the 1998 BOJ Act. Distributional consequences of unconventional monetary policy were predictable but institutionally overlooked and benefited the asset-rich households most while dragging down real wage growth and the returns for ordinary depositors and pensioners.
The thesis concludes that Japan's monetary experiment was a necessary but ultimately insufficient response to structural problems that monetary instruments alone could not resolve. Without structural reforms in other areas, it grew into a system whose distributional costs were largely unavoidable: a lesson for modern monetary policymakers in other advanced economies as well.