Heard on the Street: The Bank of Japan’s quandary is that it has gone practically as far as it can in cutting interest rates and purchasing government bonds
By Mike Bird July 29, 2019 4:37 am ET Economic growth and inflation expectations look shaky. What’s a central banker to do after exhausting every policy in the textbook?
That poses a problem, not just because Japan is faced with weak world trade and a slowing Chinese economy, but because other central banks cutting rates is likely to put upward pressure on the yen, reducing the value of foreign earnings for Japanese companies and potentially hitting the country’s exports.
Restarting the mammoth government bond purchases of 2012-2016 would have a diminished impact this time around, with yields already pinned at around 0% by the BOJ’s yield-curve control policy. And the central bank already owns nearly half of the total amount outstanding, and its policies have all but killed off activity elsewhere in the market.
But despite the fact that the country’s economic challenges are so entrenched, the institutional conservatism of the country’s economic policy makers makes such a shift unlikely.
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