Tokyo. The Bank of Japan’s massive stimulus program lowered real interest rates by slightly less than 1 percentage point, the central bank said on Friday, a day after it rolled back the timeframe for hitting its ambitious inflation target.

It was the first time the BOJ publicized an analysis on the effects of “quantitative and qualitative easing” (QQE), a sign it was gearing up to counter mounting criticism that the program has both failed to spur inflation and get the economy out of low gear.

“The actual improvement in economic activity and prices was mostly in line with the mechanism anticipated by QQE,” the BOJ said in a research paper on Friday.

When it launched QQE in April 2013, the BOJ pledged to achieve 2 percent inflation in roughly two years by flooding markets with cash via aggressive asset purchases.

After exceeding 1 percent last year, however, core consumer inflation has now ground to a halt on slumping oil costs and weak spending, forcing the BOJ to push back the timing for hitting its 2 percent inflation target on Thursday.

In the paper, the BOJ said the most important transmission channel was to lower real interest rates so that consumers and companies would boost spending rather than sit on cash.

That channel seems to be working with QQE having lowered real interest rates by slightly less than 1 percentage point, according to the analysis that covered the two years until December 2014.

During the period, Japan’s output gap improved by 2 points and annual consumer inflation rose 1 point, roughly in line with the estimated effects of QQE, the paper said.

Nominal household income expanded by 6 trillion yen ($50 billion) and corporate profits by 12 trillion yen during the period, although the boost to real gross domestic product (GDP) was small because of the hit to household spending from last year’s sales tax hike, according to the paper.

The dollar gained 24 percent against the yen and Japan’s TOPIX stock index jumped 40 percent during the period, it said.

Reuters

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