The central bankers around the developed world have been trying since the great recession of 2008/09, in order to revive their respective economies and fulfill their statutory mandates which are to maintain price stability. But inflation has eluded all of them so far and prices couldn’t be maintained at levels as described by the mandate. Almost all of them, are struggling with challenges; however, by far the biggest challenge is faced with Bank of Japan (BoJ), which is finally rising to the realization that the policy goals that they dreamt off when announcing the mega measures in 2012 may not be achieved. The so-called Abenomics has essentially failed.

Koichi Hamada, Prime Minister Shinzo Abe’s one of the trusted advisors recently spoken out his frustration, saying that he has been studying economics for half a century and has believed that what works for the world, works for Japan too but in the past six months he has seen the potential of Abenomics not working well. That is just a polite way of saying that it could or has already failed.

The Bank of Japan (BoJ) has been purchasing assets at record pace, probably most ambitious quantitative easing (QE) among all central banks and the bond yields have declined at record pace, since the introduction of negative rates since earlier this year and all these should contribute to a weaker yen against the dollar and that is enough to frustrate an array of policymakers. The yen has been the best-performing developed market currency this year.

Now, the central bank is trapped such that it can’t even move away from its policy and start fresh. Any suggestions of a wind up of easing could be very bullish for the yen or what no one really knows and the  central bank on the other hand, running out of eligible bonds to buy (at least it will in next couple of years) and negative rates are hurting banks. It looks like a sad story of a trapped central bank in the web of its own policy and deflation.