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The Bank of Japan’s monetary policy decision on Friday has been powerfully talked up by analysts and officials alike, with the bank under real political pressure to satisfy market expectations and announce new easing measures that target inflation and growth.
The BoJ surprised markets on February 14 when it announced an increase in its asset-purchasing programme to Y65tn from Y55tn, and an explicit inflation target of 1 per cent. But at its last policy meeting on April 10 it decided not to implement additional monetary easing.
Now however, the bank’s officials seem desperate to talk down the yen while nearly everyone else appears content to believe they can do more than just talk.
Masaaki Shirakawa, the governor of the Bank of Japan, gave a subtle and interesting speech this weekend that may not have been totally comfortable for his hosts at the Federal Reserve.
Mr Shirakawa set out four problems with aggressive monetary easing in the wake of a financial crisis. These are closely mirrored in the US debate about Fed policy but on several points he took the argument further: Read more
Bernanke goes back to school
Ben Bernanke, Fed chairman, next week delivers the first two of four lectures to undergraduates at the George Washington University School of Business. Read more
As most suspected, the Bank of Japan did little today to step up its fight against deflation.
Bar some tinkering with its special lending facilities, the BoJ kept policy on hold with the size of its asset purchase programme remaining at Y65tn.
However, there are signs that the central bank could do some proper easing in the coming months.
The Federal Open Market Committee and the Bank of Japan’s policy board both vote on Tuesday. Will either panel back a change in course? Read more
If there was ever any doubt that the Bank of Japan’s adoption of an inflation “goal” owed everything to political pressure and nothing to economic theory, then it was removed by Masaaki Shirakawa.
The BoJ’s “goal”, announced last Tuesday, was seen by some as a sign that the central bank would step up its fight against deflation.
However, to others, the central bank’s odd take on inflation targeting always looked more like a move to appease a Diet intent on reining in the central bank’s independence than a genuine change in the BoJ’s thinking on monetary policy.
Fifteen years ago, a little-known tragedy hit the Bank of Japan. In the mid 1990s – or during the early stages of Japan’s banking crisis – BoJ officials decided to use some of the central bank’s own yen to prop up a failing finance company, in a desperate effort to paper over problems and buy time.
But the company went bust, and the money was lost, creating a hole in the BoJ balance sheet for the first time since the second world war. Haunted by shame, the senior official in charge committed suicide, in a move that has left scars on the collective psyche of central banks’ leadership that last, even today.
However, the BoJ’s adoption of an inflation target probably owes more to political pressure than the whims of its central bankers; unlike Ben Bernanke, BoJ governor Masaaki Shirakawa has never been a proponent of the framework.
And this perhaps explains why the BoJ has been more original than most on how it plans to target inflation. Read more
The Bank of England’s Inflation Report is out on Wednesday, and with it the Monetary Policy Committee’s eagerly awaited forecast for inflation. Read more
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