Core Viewpoint - Since the late 1990s, Japan's economy has been trapped in a "two-decade deflation," leading the Bank of Japan (BOJ) to become a "laboratory" for cutting-edge monetary policy, with "manufacturing inflation" becoming a priority for its monetary policy [1][7]. Group 1: Evolution of BOJ's Policy Framework - The BOJ's monetary policy framework has evolved through three main stages from 1955 to the present, reflecting changes in economic conditions and financial markets [2][8]. - From 1955 to 1970, the BOJ employed a quantity-based monetary policy framework characterized by strong regulation, including capital controls and fixed exchange rates [2][9]. - The period from 1971 to 1990 saw a transition towards financial liberalization and a shift from quantity-based to price-based frameworks, although quantity remained dominant [15][22]. - Since 1991, the BOJ has engaged in unconventional policy experiments, moving towards a long-term easing cycle, particularly after the asset bubble burst [28][35]. Group 2: Transition from Quantitative Easing to Comprehensive Monetary Easing - The Asian financial crisis in 1997 prompted the BOJ to implement a zero interest rate policy, which was later reversed incorrectly before the internet bubble burst [3][44]. - In March 2001, the BOJ initiated a quantitative easing policy (QEP) with a focus on increasing reserve balances and committing to maintain the policy until core CPI stabilized above 0% [3][81]. - Following the 2008 financial crisis, the BOJ adopted a comprehensive monetary easing (CME) approach, expanding its asset purchases and adjusting its policy tools to address ongoing economic challenges [3][35]. Group 3: Quantitative and Qualitative Easing - Under Governor Kuroda's leadership from 2013, the BOJ's monetary policy can be divided into three phases, starting with the introduction of Quantitative and Qualitative Easing (QQE) [4][36]. - The first phase emphasized increasing base money through long-term government bond purchases, while the second phase introduced negative interest rates to combat deflation [4][36]. - The third phase involved Yield Curve Control (YCC), where the BOJ maintained flexibility in its bond purchases while targeting specific yield levels [4][36]. Group 4: Impact of Geopolitical and Economic Factors - Recent geopolitical tensions, unexpected economic slowdowns in the U.S., and the continued appreciation of the yen have influenced the BOJ's policy decisions and economic outlook [5].

Core Viewpoint - The Bank of Japan (BOJ) has fully initiated the normalization process of its unconventional monetary policy, marking the third such attempt in this century, with significant implications for interest rates, the yen exchange rate, and the economy [2][8]. Group 1: Evolution and Mechanism of BOJ's Unconventional Policies - Since the implementation of the zero interest rate policy in 1999, the BOJ has led the world in unconventional monetary policy experiments, evolving through three dimensions: interest rates, quantity, and quality [2][8]. - The transition from the zero interest rate policy to quantitative easing (QEP) in 2001 included all three dimensions, with a focus on term premiums initially, and later on risk premiums [2][8]. - The QQE+ policy introduced in 2013 further expanded these dimensions, aiming to lower nominal interest rates and improve financial conditions to support economic recovery [2][12]. Group 2: Effectiveness Assessment of BOJ's Policies - The QQE+ policy has significantly improved Japan's financial conditions, with estimates showing a reduction of approximately 100 basis points in the 10-year Japanese government bond yield since its implementation [3][15]. - Quantitative research indicates that without the QQE+ policy, Japan's real GDP would have been 0.9-1.3 percentage points lower, and core-core CPI inflation would have been 0.6-0.7 percentage points lower [3][51]. - The policy has helped Japan escape the "deflation trap," with a notable decline in loan rates and corporate bond financing rates, alongside a depreciation of the yen [3][25][33]. Group 3: Normalization of Unconventional Policies - The BOJ has officially started the normalization process, with the first step being the cancellation of negative interest rates and the abandonment of the QQE+YCC framework in March 2024 [4][66]. - The BOJ plans to gradually reduce its bond purchases, aiming for a target of approximately 30 trillion yen by early 2026, while also adjusting its asset purchase strategies to respond to rising long-term interest rates [5][66]. - The central bank's future interest rate targets are estimated to be between 1% and 1.5%, aligning with its 2% inflation goal [5][66].