The Last Samurai: Bank of Japan?
2022-09-23: [Article Link] At a time when the global central bank is experiencing a boom in interest, the central bank of Japan continues to remain in bad shape.
This Thursday, the Central Bank of Japan will issue an interest-rate resolution, and the market anticipates that the Governor of the Bank will maintain his yield curve-control policy (YCC) unchanged. Until then, the Fed may have just increased its interest rate for the third time in a row, as the market is betting.
The central bank of Japan has also continued its easing policy since March, when the Federal Reserve officially opened the interest-added cycle, and this widening monetary policy disagreement has led to a declining exchange rate of the yen since the beginning of the year.
As the only central bank in the world that is still insisting on negative interest rate policies, the dove stance of the central bank of Japan is likely to cause the troubled yen to fall again.
Last week, after the Japanese yen’s exchange rate against the United States dollar touched its 24-year low, the Japanese government stepped up its verbal intervention on the rapid fluctuations of the yen. Japan’s Minister of Finance, Junichi Suzuki, stated that direct intervention was one of the options, which, if necessary, would take place quickly and without warning, “we do not rule out any option to deal with exchange rate fluctuations.” To date, the exchange rate of the yen has stabilized at 143 levels.
According to the media, even after the yen’s exchange rate reached its 145th low point, the Central Bank of Japan still believes that the yen’s weakness is beneficial to the economy as long as the rate of depreciation is stable.
According to media reports, Kyohei Morita, Chief Economist of Nomura Securities, said:
The yen may have broken 145, but simply tossing the yen would be tantamount to playing with the fire itself.
This time, the difference is that traders will have to weigh Kuroda's tenuous stance against the strong verbal warnings of Japanese foreign exchange officials.
Tohiko Kuroda suggested that even if the central bank of Japan tried to adjust its policies in response to the yen’s fall, it would be largely futile. He said that to stop the yen’s fall, a sharp increase in interest would be necessary, which would destroy the economy during the epidemic. However, the central bank of Japan is paying a growing price for taking such a stance. Although Japan maintains short-term interest rates at -0.1%, its cap of 0.25% of the 10-year rate of return on public debt is under severe pressure.
Last week, for the first time since June, global bond sales pushed the rate of return to that ceiling. Last Wednesday and Thursday alone, the Central Bank of Japan had to spend 1.4 trillion yen (about $9.8 billion) on bonds to maintain the rate.
According to officials of the Central Bank of Japan, raising the upper limit of the rate of return is equivalent to an increase in interest rates, so that the possibility of an increase in interest rates is largely ruled out before there is sustainable inflation. If there are other surprises, a forward-looking guide to future interest rates would be an easier option.
Economists will also focus on the Bank of Japan’s forward-looking guidelines this week, as nearly 80 per cent of economists expect the Bank to end the remainder of the special financing scheme as scheduled.
The central bank of Japan currently links some of its policy guidance to the epidemic, so closing the plan means that the language may change. However, analysts argue that the central bank’s key language on interest rates remains unchanged for the time being, keeping interest rates at current or lower levels.
Why does the Central Bank of Japan insist on a liberal stance?
As mentioned earlier on Wall Street, there are three main reasons why the Central Bank of Japan insists on continued easing, one being the relative easing of inflation, which is now largely driven by the depreciation of the yen, and the analyst’s view that Japan’s core CPI is not a malignant inflation in absolute terms.
The second is that the Japanese economy is still weak, indicating that the potential pressure on prices is still declining; and the third is that the Japanese economy has not experienced an inflation-wage “spill rise”, which means that consumers consider the current high prices to be temporary and therefore the demand for high wages is limited.
Swift analysts Masamichi Adachi, Go Kurihara therefore said that, in combination with these factors, the Central Bank of Japan would not change its liberal policies until April 2023.
It's from Wall Street. Welcome to the APP for more.