Bank of Japan Broke No New Ground

April 7, 2010

As noted in my preview, the March 17 and April 30 policy meetings of the Bank of Japan were bound to be more important than this week’s.  Sure enough, the Policy Board voted unanimously to leave its key interest rate unchanged at 0.1%, where such has been since December 2008, made not further announcements about liquidity-enhancing measures, and released a statement that kept the old assessment that the economy is picking up, not yet on a self-sustaining footing, and likely to be only moderate during the coming six months.  Governor Shirakawa, however, hinted later that enough information may be available by the end of this month to upgrade the assessment at that time.  Deflation persists, and government officials would like to see more aggressive actions by the central bank to combat the chronic downtrend in prices.  The impact of policy can be assessed both from the standpoint of absolute settings, which are accommodative, and the rate of change in those settings, which have lately been static.  Indeed, the overnight money target during the past 15+ years has followed this flat progression:  0.50% from September 1995 to October 1998, then 0.25% until February 1999, briefly 0.125% in February 1999, zero from March 1999 until August 2000, 0.25% for the next 7 months, zero again from March 2001 until July 2006 during which time massive quantitative easing was also done, 0.25% from July 2006 until February 2007, 0.5% from February 2007 to October 2008, 0.3% for the next two months to December 2008, and 0.1% since a cut of 20 basis points made in December 2008.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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