Bank of Japan Meeting:

 Article Source:

 https://mainichi.jp/english/articles/20230310/p2g/00m/0bu/033000c

Article:

TOKYO (Kyodo) -- The Bank of Japan on Friday left its ultralow rate policy unchanged, maintaining its yield curve control program blamed for distorting the bond market, in the last meeting chaired by Governor Haruhiko Kuroda.

At the end of its two-day policy-setting meeting, the BOJ decided to keep short-term interest rates at minus 0.1 percent and guide 10-year Japanese government bond yields to around zero percent, as widely expected. The U.S. dollar briefly surged by around 1 yen toward 137 yen shortly after the outcome was released.

Ideas:

This is not a surprise as the Bank of Japan had stated earlier that it plans were not going to change. 

If the short-term interest is at minus 0.1 percent, not many investors are going to want to buy or use interest rates.

But that might be the logic or strategy of the Bank of Japan as a way to discourage borrowing.

The banks in Japan might not be happy as the maybe can't make a profit on short-term loans.

Article:

The decision to maintain policy by the nine-member board is based on the view that Japan's inflation, currently well above the BOJ's target of 2 percent, will start falling later this year. It leaves the future unwinding of Kuroda-era monetary easing up to Kazuo Ueda, an academic who will assume the post of governor on April 9 following his approval by parliament on Friday.

The central bank will continue buying unlimited amounts of 10-year Japanese government bonds to defend its 0.5 percent cap on the benchmark yield, a post-meeting statement said.

Ideas:

The Bank of Japan's target of 2 percent was/is based on consumer demand and consumer spending, not on prices increasing due to increases in energy or food costs.

Time will tell if inflation will begin to decrease. In the US it has fallen from 10 percent a year a ago to around 4 percent recently, so maybe inflation will being to decrease as the Bank of Japan expects.

Being an academic is one aspect but being a practicing economist where you have to decide on policy to help or manage or fix the economy is completely different situation.

Article:

Raising the ceiling further was seen as a potential next move by the BOJ after its abrupt decision in December to lift it from 0.25 percent, but the move did not improve market functioning and instead fueled expectations that the central bank would shift from ultraloose monetary policy despite its strong commitment to staying the course.

Kuroda is nearing the end of his 10-year term without achieving stable 2 percent inflation, the goal used by the central bank to justify policy decisions that at times have surprised financial markets.

Ideas:

Policy makers or the Bank of Japan don't always get it right as there are just too many unknown factors in play in an economy. The best a central bank can do sometimes is to make sure it doesn't cause too much harm with it policies.

Central Banks and the Bank of Japan usually are very conservative and don't make rash moves or sudden moves that might disrupt the financial markets.

And in this case the Bank of Japan will probably stay the course with it ultra-low policy for the time being, as making any new moves with a new governor might cause disruptions in the markets.

Article:

The BOJ's unwavering stance on monetary easing has made it an outlier among major central banks, which have been stepping up their fight to curb inflation with aggressive interest rate hikes.

Despite the BOJ's renewed pledge to keep borrowing costs extremely low for a while, Japanese bond yields are expected to face upward pressure and a weaker yen may persist, after U.S. Federal Reserve Chairman Jerome Powell pointed this week to higher and potentially faster rate hikes amid stubbornly high inflation, analysts said.

Ideas:

The Japanese economy and the US and or EU economy are much different as what works in Japan might not work in the US and what works in the US and the EU might not work in Japan.

What is important, and we see it, if for a central bank to stay with one consistent policy or strategy and not change it every month or every quarter. 

To change a policy or strategy too often would cause market disruptions as markets want stability in strategies or policies.

The Bank of Japan might be an outlier but maybe it working in Japan maybe it wouldn't work in the US or the EU.

Article:

"The BOJ has been forced to buy government bonds aggressively to maintain YCC, which will be its biggest concern for the time being," said Takahide Kiuchi, executive economist at the Nomura Research Institute, referring to the yield curve control program.

Kiuchi, a former BOJ board member, expects the central bank under the next governor, to raise the 10-year yield cap further or remove it in April or June in the name of making the existing monetary easing framework more "flexible."

Ideas:

The Bank of Japan is the biggest buyer of Japanese government bonds which is both a positive and a negative. 

Its a positive as most likely there is not a lot of external buyers that was seen in Greece in 2010 when most of Greece's debt was external.

In this case much of Japan's debt it internal and owned by the Bank of Japan, which maybe is a good and not so much a negative situation.

Making the monetary easing situation more flexible would be a good strategy which will give the Bank of Japan more room to tweek it policy here or there without major changes if needed.

Article:

For now, Ueda, the incoming governor, is on the same page as Kuroda regarding the need to maintain monetary easing. But he has acknowledged the heavy responsibility of leading the central bank when there is no room for "wrong judgements," leaving the door open for a future overhaul of the yield curve control program.

The BOJ said in its statement it expects both short-term and long-term interest rates to remain "at present or lower levels," pledging to take additional easing steps should the need arise.

Ideas:

To ease market concerns, of course the Bank of Japan is going to say the current governor and the incoming governor are on the same page. 

To avoid "wrong judgements" the Bank of Japan most likely, for the time being, it not going to make any rash or major changes in its strategies or policies. 

If there is any "future overhaul" if will be very small and might not even be noticeable as the Bank of Japan wants to maintain stability even if the current strategies or policies are not exactly perfect at the present time.

Article:

Kuroda took the post in 2013 when the central bank was criticized by politicians for dragging its feet on monetary easing.

Ahead of the policy decision on Friday, Finance Minister Shunichi Suzuki gave Kuroda credit for his guidance of monetary policy over the past decade that has produced "big results" and enabled Japan to emerge from "a state of deflation."

Ideas:

An economy is very complex which means sometimes policies help an economy or different sectors or industries and sometime they don't.

Japan might have emerged from as "state of deflation" overall but has the entire economy benefited from the Bank of Japan policies.

What part of the economy has benefited from the "Abenomics" plan and so on. It's hard to figure out how much of the economy was helped by Abenomics and which part was helped by the Bank of Japan strategies.

Overall the Japanese economy might have moved out of it "deflation" mindset which has allowed for some inflation into the Japanese economy.

Article:

Still, ultraloose monetary conditions have failed to jolt the economy out of low growth and raise productivity, while its side-effects, especially the distorted bond market and looser fiscal discipline, have become more evident.

The policy meeting was also the last for deputy chief Masayoshi Amamiya, a key figure in the design of the policy framework in recent years, including the yield curve control program, who was once seen as strong candidate to succeed Kuroda. The other deputy governor, Masazumi Wakatabe, is also leaving the BOJ with Amamiya on March 19.

Ideas:

While the ultra-loose policy might have failed to jolt the Japanese economy out of it low growth mindset and or didn't increase productivity what would have happened or what would have been the side-effects if the Bank of Japan had decided to use the same strategies as the US of the EU.

Policy making and strategy decisions are always more of an art and not so much a science as there are just too many variables to control and any variable can change quickly which can disrupt any new policy or strategy quickly.

If the Bank of Japan focuses on only one variable and or other variables to fix and or manage it might neglect other variables at the same time. 

So it strategy decisions or policies of course have to look at the big picture and what might work overall for the best of the Japanese economy. 

Have a nice day and be safe!