A common misconception is that, because interest rates in Japan have been abnormally low
for most of the past 30 years, monetary policy in Japan has been “easy”. In this article, Steve
Hanke and I explain that monetary policy in Japan has not been easy; on the contrary it has
been tight when judged by the anaemic growth of the broad money supply. To achieve a
sustainable 2% inflation rate, Japan would need about 5% p.a. money growth, not the 2-3%
it has typically experienced. This helps to explain some of the conundrums evident in Japan
today.