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March 8, 2006
Bank of Japan holds steady
The lead-up to the decision...
Last week it seemed like the Bank of Japan might be ready to join all of the other major central banks and hop on the rate hike train. This week they get some advice from the OECD, and that advice is "not so fast." From the Times Online:
The OECD cautioned Japan yesterday against any over-hasty move to end its zero interest-rate policy, telling Tokyo that the world’s second-largest economy was only slowly emerging from deflation.
The NY Times shows concern...
TOKYO, Thursday, March 9 — Is Japan about to start a sell-off in global financial markets?
Economists dismiss such fears as alarmist. But concerns have been building ahead of an expected vote Thursday by the policy board of the country's central bank, the Bank of Japan. At issue is whether the bank should end its policy of supereasy money, which has kept Japan's short-term interest rates near zero.
Because no major central bank has ever had such a loose policy, no one knows for sure how to end it smoothly.
Economists say the Bank of Japan must tread carefully to avoid sending shock waves through the country's recovering economy and through world markets.
"These are uncharted waters for a central bank," said R. Glenn Hubbard, dean of Columbia University Business School and a central banking expert. "Exiting with minimal disruptions will be a difficult exercise."
Bloomberg has the same sort of feeling I get on a spring day in Illinois as the barometer starts to fall and things get really still...
March 9 (Bloomberg) -- The yen was little changed as Bank of Japan Governor Toshihiko Fukui and members of his board meet to decide how to end five years of deflation-fighting policies.
Currency fluctuations may be exaggerated today as investors jockey for position as the BOJ makes its decision, traders said.
...
Some traders who built up dollar holdings against the yen before the meeting may have placed automatic orders to sell the U.S. currency in case their bets go the wrong way, he said.
...
``We could have hit-and-run moves by speculators trying to break those levels around 117.30-117.35,'' said Soma. ``This meeting could be a milestone in Japanese history so it's hard to push the yen lower even if rates don't rise soon.''
...
``There's that nervousness around,'' said Waddington, head of interbank currency sales. ``On a knee-jerk we could go as far as 117. Anything under there will start to see very good bids'' for dollars. ``Buy that and try and take out stops above 118.''
...while Reuters weighs the risk of doing nothing...
TOKYO (Reuters) - Japan's central bank will decide on Thursday whether to scrap its unprecedented super-loose monetary policy, paving the way for a rise in interest rates from zero that could reverberate around the world.
If the Bank of Japan stands pat, however, it could leave itself open to criticism that it had bowed to pressure from politicians worried about derailing Japan's hard-won recovery.
...and the decision comes down...
March 9 (Bloomberg) -- The yen traded lower after the Bank of Japan said it will keep interest rates near zero percent after it ended a five-year policy of fighting deflation.
...
``The yen is more likely to fall than rise,'' said Yasunori Kuroda, who helps manage fixed-income assets in Tokyo at Sompo Japan Insurance Inc., the nation's third-largest casualty insurer. ``The BOJ probably won't raise rates anytime soon, keeping the rate-differential story alive.'' He spoke before the announcement.
And so it goes for a few more weeks, at least. But the end is in sight...
TOKYO (Reuters) - The Bank of Japan scrapped a five-year-old experiment with ultra-loose monetary policy on Thursday and returned to a more conventional regime, but said it would still keep short-term interest rates around zero for now.
The decision represents a first step toward an eventual interest rate rise in a country where rates have been virtually zero for years, and reflects the central bank's confidence that a seven-year fight against deflation has been won.
So, it's sort of a move, but not really a move. On your mark, get set.... but not quite "go".
Here's the official announcement, if you are so inclined.
At the Monetary Policy Meeting held today, the Bank of Japan decided to change the operating target of money market operations from the outstanding balance of current accounts at the Bank to the uncollateralized overnight call rate, and to set the following guideline for money market operations for the intermeeting period.
The Bank of Japan will encourage the uncollateralized overnight call rate to remain at effectively zero percent.
UPDATE: Day two story.
TOKYO (Reuters) - Japan's central bank and government sparred politely on Friday over when to raise interest rates, a day after the Bank of Japan defied political pressure and scrapped its hyper-loose monetary policy.
Bank of Japan Governor Toshihiko Fukui repeated that the central bank would for now anchor interest rates around zero, where they have been for most of the past seven years.
...
"Eventually, there is a need to gradually raise rates in Japan to a level in line with the economy and prices," Fukui told a parliamentary committee.
"We cannot keep rates at zero forever. But as we are only finally emerging from deflation ... we will continue to offer an accommodative monetary environment for a while," he added.
"I cannot say for how long."
Posted by William Polley at March 8, 2006 10:59 PM
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