Why is Japan finding it so difficult to raise inflation to its 2 per cent target? Why has its monetary policy become so extreme? Why is Japan’s public debt so remarkably high? The answer is that the country shares challenges confronted by other high-income economies, but in extreme form. This does not mean its situation is disastrous. It means that conventional wisdom is misleading.

Despite the efforts of the Bank of Japan, year-on-year inflation (without fresh food and energy) is only 0.2 per cent. Yet nearly five years have passed since, in concert with the government, the BoJ declared its intention to hit a target of 2 per cent inflation. Then, in April 2013, it announced “quantitative and qualitative easing”, which unleashed a huge expansion of its balance sheet. In January 2016, it announced a modestly negative rate on new bank reserves. In September 2016, it announced “yield curve control”. It has even said that it would continue to buy assets until inflation “exceeds the price stability target of 2 per cent and stays above the target in a stable manner”. That is a commitment to future irresponsibility.

Yet even all this has failed. This is not because these measures — supported by expansionary supplementary budgets — have failed to stimulate the economy. The rate of unemployment has fallen to 2.8 per cent, a level last seen in 1994. The Organisation for Economic Co-operation and Development has forecast growth at 1.5 per cent this year, up from 1 per cent in 2016, and it expects growth of 1.2 per cent and 1 per cent, in 2018 and 2019 respectively, both slightly above potential. Moreover, gross domestic product per head grew at close to the average rate of OECD members between 2012 and 2016. (See charts.)