2021年10月26日

Exports of ultra-loose monetary policy are hard to find in Japan

TOKYO, March 20 (Xinhua Topic: Japan finds it hard to export ultra-loose monetary policy

Xinhua News Agency reporter Liu Chunyan

The Bank of Japan (BOJ) announced the results of the “review” of the ultra-loose monetary policy on the 19th: continue to maintain the current easing intensity, and adjust relevant policies to enhance the flexibility and sustainability of the ultra-loose monetary policy.

While the result came as a relief to market investors worried about a change of direction in monetary policy, many economists feared it would be difficult for Japan to exit its long-serving ultra-loose monetary policy.

Kuroda took over as governor of the Bank of Japan in 2013 and overhauled Japan’s monetary policy framework with the introduction of ultra-loose monetary policy. Japan has been in negative interest rates for eight years but is far from meeting the central bank’s 2 per cent inflation target. At the same time, by continuing to buy financial assets in the market, the central bank has become the “largest shareholder” of the Japanese stock market, resulting in a serious distortion of the price formation mechanism. The worse the economy is, the more prosperous the stock market is.

That is why there has been no shortage of criticism and concern about the side effects of Japan’s ultra-loose monetary policy. This was the rationale behind the Bank of Japan’s decision in December to review its ultra-loose monetary policy and explore more effective and sustainable policy tools.

However, the results of the review do not change the status quo. Kuroda reiterated on the 19th that it is too early to discuss the exit of ultra-loose policies. The central bank said in a statement that in principle, it will continue to stick to the fixed interest rate, keeping the short-term interest rate at minus 0.1 percent and keeping the long-term interest rate around zero by buying long-term government bonds.

At the same time, the People’s Bank of China decided to expand the range of long-term interest rates to plus or minus 0.25% from the previous range of plus or minus 0.2% in terms of operation, to increase interest rate flexibility and expand the profit space for financial institutions.

The statement also said the central bank would keep its annual cap on purchases of exchange-traded funds unchanged at 12 trillion yen (108 yen to the dollar), scrapping its annual target of roughly 6 trillion yen a year, using a flexible strategy of suspending purchases when stock prices are high and actively buying when markets are volatile.

In addition, the central bank will also establish a “promotion loan surcharge rate system”, which will pay a certain incentive interest linked to the short-term interest rate on the demand deposits of financial institutions in the Bank of Japan, so that the interest rate can be lowered flexibly if necessary, such as a sudden appreciation of the yen. Some analysts believe that this will allow the central bank to continue to dig deep into the negative interest rate space.

Kuroda bluntly, this policy adjustment is aimed at enhancing the flexibility and sustainability of ultra-loose monetary policy. He said the central bank will continue to implement strong easing policies in order to achieve its 2 percent inflation target.

Many economists believe that due to the 2 percent inflation target, it will be difficult for Japan to exit the ultra-loose monetary policy for a long time while various structural problems remain unsolved and the economy is still struggling to get out of deflation.

According to the latest data released by the Ministry of Internal Affairs, Japan’s core consumer price index fell 0.4 percent in February from a year earlier, the seventh consecutive month of year-on-year decline.

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