Observing the trend over the past few years, the current global economy has stepped into a slower growth and low inflation stage. Central banks from countries around the world have loosen their control on currencies, while zero interest and negative interest measures have become the new trend of international currency market. This has caused a lot of people thought that the world economy is being "Japanified". If we observe what is happening in Europe and Japan currently, it seems that this is the fact. Both regions are maintaining low interest rate and low economic growth for a long period of time. With the low inflation rate of the U.S., the impact of tax reduction is wearing off. With the third rate cut of the Federal Reserve this year, the U.S. seems to be following Japan's footsteps. There are speculations that China's continuous slow economic growth, is due to current global economic downturn and overcapitalization.

The characteristics of "Japanification" policy are large-scale but in effective currency stimulation which pushes down bond yield and simultaneously inflate debt burden tremendously. An analysis by Morgan Stanley discussed that, the symptom of expansion of "Japanification" is, the increase in scale of negative yield rate bond. There are signs showing that rate of increment has accelerated in this summer. Data indicates that 40% of global wealth has been exposed to negative interest rate environment. Among all, the bonds with negative global effective rate of return, with a total value of US$ 20 trillion, occupy 1/3 of the total bond issued. The issuing of global debt was in fact got out of hand since 2008 global financial crisis. A report by Institute of International Finance (IIF) indicates that, as the first half of this year, the scale of global debt has surged from US$ 7.5 trillion to US$ 250 trillion. China and U.S occupied 60% of the new debt. Under the long-term environment of low interest, it is expected that global debt will reach a historical high of US$ 255 trillion. These situations indicate that global economy is moving towards the "black hole" of Japanification", which means that it is experiencing slow growth, low inflation, low interest rate, and high debt.

Is the loose "Japanification" policy effective? In fact, from 2001 onwards, Japan has maintained low interest and loosen its currency controls. In certain extend, this has impacted its economic growth. However, countries around the world are following Japan's footsteps to implement the similar policy, soon after Japan's implementation. Furthermore, they are still maintaining low interest currently. The Bank of Japan has paid huge effort in increasing its inflation, and the results has come into a conclusion that the rate of inflation could not be established through resorting to policy maneuver. This matter is disrupting the major economies' currency policy law makers, such as those of European Central Bank and U.S. Federal Reserve.

Observing the "lost twenty years" of Japanese economy, and the history and evolution of 2008 Global Financial Crisis, quantitative easing is effective in preventing collapse of financial system. While this is absolutely true, in reality it is the end of the influence of loose monetary policy. After the toughest time of financial crisis, with the second round and third round implementation of QE, the consecutive easy-money policy has limited impact towards economic growth and inflation. On the other hand, currency depreciation due to monetary easing policy will probably take effect. However, not all countries' currency depreciates at the same time. As what ANBOUND had mentioned earlier, the easing of global currencies will only lead to currency flooding, as well as "currency cold war" in different countries. With this, all countries will eventually move towards zero interest rates. With long-term low interest rates, companies with low effectiveness will survive, and this means the potential economic growth rate will decrease. Subsequently, the natural interest rate will decline, and the central banks will have to follow in the footsteps of natural interest rates. This mechanism is taking in action right now, and it is the result of "Japanification" of global economy.

Although central banks in many countries are aware that overly lenient monetary policy could no longer play the role of stimulating economic growth. However, the continuous economic downturn has caused policy makers getting even more difficult to get rid of persistent dependency over these policies. Ever since The Federal Reserve withdrew from QE after 2009 financial crisis, it has attempted to implement the "normalization process of monetary policy". However, under the dual pressure of capital market and U.S. government, the Fed had no choice but to implement Trump's policy. This is to prevent the burst of capital market's bubble due to the implementation of loose monetary policy. The Bank of Japan also attempted to interfere long term bonds market, and subsequently impacted long-term government bonds to further stimulate economic growth in these recent years.

After 2016, the Bank of Japan has lower down the whole yield curve through buying in long-term government bonds and selling treasury bills. These actions have also gained the control of long-term interest rate and forward rate. The governor of Bank of Japan, Kuroda Tohiko once publicly stated that, the Bank of Japan could only get rid of deflation through gaining the control of long-term government bonds' yield rate, which will also create positive impact towards enterprises and normal citizen, as well as real interest rate. However, the end result was not favorable. The Bank of Japan could not win in the "competition" with market interest rate, and fails to achieve the goal of 2% inflation rate. Obviously, with the implementation of loose economic model, policy with positive economic growth through relying on structural currency realignment would not be effective. It is not that easy to give up the"Japanification" policy.

The phenomena of "Japanification" indicates that, no matter which macro-economic policy (monetary policy or financial policy) is implemented, at the end of the day, it is subject to the limitation of intrinsic growth rate. Therefore, it is extremely important to improve productivity. Some Japanese experts have made some conclusions about the "Japanification" policy, Japan has mistakenly placed resolving deflation as its top priority, and the country is also having slow progress in increasing its own GDP. While implementing the policy, Japan has overly relied on loose monetary policy. However, it is not easy to get out from this situation. Firstly, in terms of incremental income and cost, the decision to go for loose monetary policy implementation is more reasonable. However, after detailed calculation of income and cost, the reasoning of "overly relying on loose monetary policy" is no longer valid. Secondly, the implementation of loose monetary policy in U.S. is more effective than any other countries in the world, which has reflected the predominance of U.S Dollars. Because of this, even if this is a worldwide "zero-sum game", the U.S. will still insist with the implementation of loose monetary policy. Thirdly, with the anti-globalization of populism and the rise of trade protectionism, it will be getting harder to solve the problems arise due to structural changes.

For China, ANBOUND has previously pointed out that, China will still be having the problem of low interest rate and zero interest rate, even though the world is facing excess liquidity problem. Because of this, The Central Bank of China is under internal and external pressure to stabilize its monetary policy. Most small and medium enterprises are still lacking financial support due to the obstruction of monetary transmission mechanism and credit classification, and having the strong demand of "loosening" and "thirst appeasing". On the other hand, under the situation of competitiveness depreciation of global currencies, it may bring the pressure of large-scale capital inflows and the losing of competitiveness to physical enterprises. According to Hu Yifan, the chief China economist of the wealth management division of UBS, there is a need to get to know more about leveraging. As we can see, there are still room of improvements for China's monetary policy, which requires us to consider about the balance between short-term fluctuations and long-term benefits. Of course, as mentioned previously, we could not solely rely on monetary policy. It requires the integration of other microscopical policy, adhering to structural reforms on the supply side, and solving the problem of agility and effectiveness due to chronic growth of economy on the other side.

Final analysis conclusion:

The sign of "Japanification" of global economy and monetary policies is getting more obvious. Many people have come to realize that excessive monetary easing policies are no longer able to fuel economic growth. However, it is not easy to terminate the "Japanification" policies. This is a dilemma for the current monetary policies. As for China, the balance between short-term and long-term monetary policies should be considered as well.