Bank of Japan News:

 https://mainichi.jp/english/articles/20210330/p2g/00m/0bu/100000c

Article:

TOKYO (Kyodo) -- Bank of Japan Governor Haruhiko Kuroda said Tuesday that cutting interest rates would be a "nimble and effective" monetary easing option following a recent review aimed at making the current policy framework sustainable in the midst of the coronavirus pandemic.

Japan's economic activities and prices are expected to remain under downward pressure for an extended period and the central bank will not hesitate to take additional easing measures if necessary, Kuroda told an event hosted by Kyodo News.

The BOJ carried out an assessment of its policy tools at its March 18-19 meeting as the pandemic has moved its already elusive 2 percent inflation target further away.

Ideas:

As businesses and consumers refrain from their usual economic activity prices will either remain flat or continue a downward spiral.

That might seem good for consumers, with lower prices, but its not good for the overall economy.

An economy needs a certain level of economic activity to grow and for prices to rise, so that not only are consumer benefitting, but also businesses too.

Reducing interests, may or may not, be an incentive for businesses and consumers to borrow money and use it in the economy, thus increasing economic activity.

There will be an acceleration affect, or could be, where more economic activity is an incentive for more economic and activity. 

As consumers begin to spend, businesses make more profits, then business begin to invest and so on, which eventually lead to an increase in many different sectors.

Article:

It decided to establish a scheme to mitigate the impact of potential rate cuts on financial institutions and encourage them to extend loans.

"This scheme enables the Bank of Japan to cut short- and long-term interest rates nimbly without hesitation while considering the impact on the functioning of financial intermediation," Kuroda said.

"Cutting those rates is an important option as a nimble and effective additional easing measure."

The BOJ chief said the review has "strengthened" the easing framework, in that it will enable the central bank to pursue monetary easing "more strongly than before."

Ideas:

Yes, reducing interest rates might be an incentive for business and consumers to increase their economic activity, but in many cases its not so good for financial institutions who would be losing profits, unless the BOJ is able to provide incentives for banks or even subsidies during the pandemic period.

Banks also need to be protected with some kind of subsidy and or the more loans they process at the lower rates, they can get a percentage it back from subsidies from the BOJ.

But then of course the banks might cut the rates and actually might get more business than before, which would or could offset the loss from the reduced rates and they now have more customers than before.

Article:

Prior to the review, the BOJ faced criticism that its program to keep short-term interest rates at minus 0.1 percent and guiding 10-year Japanese government bond yields around zero percent has made the bond market moribund and aggressive purchases of exchange-traded funds have distorted market functions.

The BOJ expanded the range in which the yield of 10-year government bonds is allowed to move to minus 0.25 percent to 0.25 percent from the previous, implicit target of minus 0.2 percent and 0.2 percent.

"Clarifying the (allowed) range of fluctuations is part of our efforts to strengthen communication with markets," Kuroda said in a question and answer session of the online event.

Ideas:

Bond market buyers need to have an incentive to buy bonds. If they rate is too low, there is no incentive to buy. But as the BOJ has done, it has now raised the rate to where it might be enough to stimulate the bond market. Or maybe not.

Fluctuating rates might actually be a good thing, because today, many economies are inter-connected to each other and government sometimes buy bonds from other countries.

At the same time the fluctuating rates are more able to respond to changes in global conditions.

Article:

Kuroda acknowledged that the tools the BOJ employs have become "complex" as it seeks to boost the effectiveness of monetary easing and address side-effects.

He said the bank believes it possible to achieve the 2 percent inflation target by continuing with monetary easing.

Japan's core consumer price index excluding volatile fresh foods dropped 0.4 percent in February from a year ago.

Ideas:

The BOJ has been trying to reach the 2 percent inflation target for many years with no success.

Perhaps during this pandemic period, the BOJ should set aside the 2 percent inflation goal and focus on helping all the business that are just barely surviving.

And then after the pandemic has past and more consumers begin to spend, more consumers have jobs again, then the BOJ can begin re-focus on the 2 percent goal.

Prices will continue to drop unless there is enough economic activity to push prices up. But that might not happen until the pandemic has passed.

Have a nice day and be safe!