Robin Harding Notes on the Bank of Japan

Here are few observations on the Bank of Japan’s move today to supplement our news story and an analysis that should be online shortly. To recap, the BoJ expanded its three-month, 0.1 per cent lending programme from Y10,000bn to Y20,000bn in a 5:2 split decision on the policy board.


As a response to political pressure it is effective and subtle. I’m sure the two external board members who dissented did so for their own reasons, but it’s a neat reminder to politicians that the central bank is independent, and not designed to be easily biddable.

The three-month loans will be dribbled into the market at a rate of Y800bn a weak for the next three months (to ease their eventual withdrawal). For the next three months the BoJ will be able to point to the programme and say, “We’re still increasing loans and waiting to see what happens.”

The two dissenters

My conclusion from a study of the tea leaves is that the policy board split was not on economic fundamentals. Instead I think there was concern that the Y10,000bn number might give the wrong impression the BoJ was engaging in (shock, horror) quantitative easing; that the size of such programmes should be an operational issue not handled at the policy board; and that the signal was not right given the incoming data.

Likely effects

Very little to none. The stock market went up but I doubt that will be sustained. Bank profits will be flattered a little and they may decide to give a few safe borrowers slight discounts on their loans. The FX market may briefly heed another little lesson on the dangers of pushing up the yen.

Where do we go from here?

Interesting. The BoJ will respond to economic data so if things get worse from here then I’m sure we’ll see six-month term loans. I also think today’s move is evidence that the BoJ will pull out other little tricks when needed to maintain inflationary expectations (and please other audiences).

A competition question (with no prize)

Finally, a question for our brainy audience (and Chris). You are a central bank mired in deflation but hard up against the zero bound on interest rates. You are reluctant to take radical and risky measures (monetising government debt, buying real assets, helicopter drops etc) but you need to keep taking action. What – and I’m asking for imagination here – can you do?