Applying the VAR model, the author finds that targeting real MC+CD is the most effective monetary policy in raising real GDP for Japan. Real monetary base ranks second whereas there is a 95% probability that the confidence interval of the response of real output to the overnight call rate contains a zero value. More government debt has a negative effect on output. Yen appreciation is expansionary in the long run. Real equity prices seem not to affect real output. Therefore, the proposals to pursue debt-financed spending or yen depreciation to help Japan’s economy may need to be reassessed thoroughly. Because the overnight call rate is probably too low to be cut and is insignificant, the Bank of Japan may consider switching to M2+CD and/or the monetary base as a policy instrument in stimulating Japan’s economy as suggested by McCallum (2002) and Meyer (2001).