A burst of currency intervention by Japan in recent days has pumped ?2 trillion (US$17 billion) or more into money markets in the country, prompting hopes in some quarters that it will help boost the stagnant economy.
But a majority of economists and traders say this theory, while fine in textbooks, is bunk in a country where interest rates and economic confidence are already near zero.
Traders estimate the Bank of Japan has spent ?2 trillion or more buying dollars for yen in several rounds of unilateral intervention since last week. The main aim has been to prevent an export-threatening rise in the yen as the US currency reels from the shocking attacks on New York and Washington.
Judging by the amount that was left in the central bank's current account deposits, traders say the intervention was unsterilized -- in other words, the funds used to buy dollars were left in the market rather than being absorbed by Japan's central bank.
This has given the bank some extra breathing space as it fends off criticism from politicians and some economists that it is still not doing enough to prevent the economy from sliding into its fourth recession in a decade.
In an annual report published in June, the Bank for International Settlements (BIS) joined the chorus calling for the central bank to unsterilize its intervention, urging the bank to take more risk to stimulate the economy.
But how much impact is it really having? For one thing, the amount of liquidity generated by unsterilized intervention is just a drop in the ocean of funds it is already supplying under its quantitative-easing policy.
Japan's central bank currently leaves about ?50 trillion worth of credit in the banking system each day through money market operations, such as purchases of treasury and commercial bills.
That compares with dollar-buying of between US$2 billion and US$10 billion when it has intervened in recent days.
"The amount of forex intervention is very limited in size compared with the mega-liquidity the Bank of Japan provides through other channels," said Shin Nagai, treasurer at ABN AMRO Bank N.V.
What's more, economists say most of those funds are sitting idle because firms are too busy struggling with debt and anaemic demand to think about taking out new loans.
"The rise in the monetary base has little economic significance in this abnormal environment where companies' demand for funds is sluggish and banks are not making new loans," said Yasushi Okada, chief economist at Credit Suisse First Boston Securities (Japan) Ltd.
"The increased monetary base only adds to the piles of unused, idle money that banks hold at the Bank of Japan."
Bank data shows that funds deposited with it by commercial banks beyond their reserve requirement stood at ?6 trillion on Wednesday, up from around ?1.8 trillion a month ago.
The extra amount in these non-interest-bearing deposits represents surplus funds for the banking sector, which under normal economic growth conditions would be used as additional reserves against which banks extend extra loans.
However, Japanese bank lending marked a 44th straight month of year-on-year decline in August, suggesting that the extra money has indeed been laying idle.
In theory, unsterilized intervention should also help create a surplus of funds in the banking system and thereby increase downward pressure on interest rates. But with Japan's overnight rate already at 0.002 percent, there is precious little room for further rate falls.
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