BoJ move shows limit of cen­tral bank pow­ers

The Sun (Malaysia) - - SUNBIZ -

TOKYO: Ja­pan’s cen­tral bank has re­vealed yet an­other ex­otic weapon to gen­er­ate growth, but scep­tics say all it shows is that the ar­moury is empty and a long bat­tle against de­fla­tion is be­ing lost.

With the Euro­pean Cen­tral Bank ap­par­ently set to em­bark down a sim­i­lar path and the Fed­eral Re­serve tread­ing very lightly, some an­a­lysts are say­ing the Bank of Ja­pan’s (BoJ) move is an ad­mis­sion of de­feat and a warn­ing of the lim­its of cen­tral bank power.

Af­ter a hotly an­tic­i­pated meet­ing yes­ter­day, the BoJ said it would switch its em­pha­sis from in­ter­est rates and con­cen­trate its fire­power on 10-year gov­ern­ment bonds.

Gov­er­nor Haruhiko Kuroda said the bank would buy as many or as few of these bench­mark in­stru­ments as nec­es­sary to en­sure the yield – the in­ter­est rate paid to hold­ers – re­mained steady at around zero.

He also pledged he would cut back on the num­ber of longer dated bonds the bank holds. That should re­duce the price of long-term se­cu­ri­ties, which in turn, should in­crease their yield.

This so-called steep­en­ing of the yield curve is the lat­est ef­fort to con­vince Ja­panese con­sumers that the price of goods and ser­vices will rise in the fu­ture.

The idea is that if peo­ple think prices will rise, they’ll rush out to spend their money, caus­ing prices to ac­tu­ally in­crease.

But the prob­lem, say an­a­lysts, is that af­ter more than three years of boot­lessly in­sist­ing that in­fla­tion is com­ing back (it has barely budged) Kuroda is low on cred­i­bil­ity.

“It’s hard not to see the BoJ state­ment as a fur­ther sign that it it is run­ning out of ideas,” said Ge­orge Mag­nus, an ad­viser to UBS Group AG, Bloomberg re­ported. – AFP

Peo­ple walk past the teller counter in­side In­done­sia’s cen­tral bank, Bank In­done­sia, in Jakarta yes­ter­day.

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.