The solution that the BoJ came up with was a fancy new lark called quantitative easing. It embarked on this monetary experiment back in 2001 and has since engaged in an asset-purchase program that makes other central banks look like mere dilettantes.
Indeed, following the financial crisis, the BoJ was in danger of running out of bonds to buy and started snapping up shares through exchange-traded funds. Today, its balance sheet is bigger than Japan’s entire $5 trillion (£4.2 trillion) economy.
But those trillions of dollars of fiscal stimulus have had limited success and many perverse unintended consequences. For one thing, it has resulted in the nation’s banks becoming incredibly risk averse, preferring to hoard government bonds on their balance sheets rather than lend to potentially productive companies in the private sector.
Some would argue that it has also artificially weakened the yen, which has allowed companies and the government to avoid making the hard choices necessary to increase productivity and raise competitiveness. Why bother rolling up your sleeves and doing the hard graft when there’s endless free money sloshing around?
Of course, since the financial crisis, other central banks have indeed taken a leaf out of the BoJ’s book and embarked on their own quantitative easing programmes. Future textbooks will be written about whether Japan’s unique circumstances lulled policy makers into thinking they could continually increase the money supply without stoking inflation.
One thing appears relatively clear already. Global governments have effectively outsourced the management of the economy to their central banks for the best part of 15 years. And that tactic is getting old fast. Keeping interest rates so low for so long has reduced the potency of monetary policy. Central banks are increasingly “pushing on a string”.
Nowhere is this more true than in Japan. There is growing evidence that the BoJ’s easy money policies have produced only illusory growth at best. The more the country’s policy makers have tried to stimulate the economy, the less it has reacted. Japan is now the most indebted rich country in the world with a debt-to-gross domestic product ratio of 257pc.