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Bank of Japan: Fighting the Crisis with Words and Liquidity – Nord LB Column

The Bank of Japan has again made no adjustments to its interest rate policy. As expected, both the “traditional” base rate and the target yield for Japanese government bonds in the 10-year maturity band remain unchanged. In addition, no changes were made to the “classic” purchase programs. However, the central bankers in Tokyo have decided to ramp up their loan package to improve the liquidity situation of Japanese companies. This makes it clear that the Bank of Japan wants to continue to actively counter the negative economic effects of the coronavirus crisis.

When it comes to communication policy, the central bank in Tokyo seems to want to focus on its pronounced caution. Central bank chief Haruhiko Kuroda emphasized that there will be no key interest rate adjustments in the next two years. He also stated that the central bank would not hesitate to take further necessary monetary support measures if necessary. Kuroda also addressed the high level of uncertainty caused by the corona virus crisis. In this context, he said that in the current environment you have to be prepared to react flexibly to the pandemic. In his opinion, there would be different ways of doing this. He also referred to the option of interest rate cuts. But he also stressed that the Bank of Japan would not consider extremely low long-term capital market returns to be desirable. The goal must be to anchor the yield curve relatively stable at a low level.

With regard to the central bank’s inflation target, Kuroda emphasized that the deteriorating economic environment would currently lead to burdens, which could even lead to deflationary trends at times. With the emerging economic recovery, prices in Japan will then rise again. In this respect, the Bank of Japan can stick to its numerical inflation target of 2%.

In future, central banks in Tokyo are already expecting the Japanese economy to recover sustainably. First of all, however, burdens can be expected. In addition, the coroan virus crisis is causing uncertainty among economic agents. However, Kuroda has already stressed that the recent price rises on the international stock markets would signal investors’ hope that the economy would recover.

Conclusion: Once again, the Japanese central bank has made no changes to its interest rate policy. This was to be expected. No modifications have been made to the “traditional” purchase programs. However, the volume of the loan package has been adjusted to improve the liquidity situation of Japanese companies. It was also clearly communicated that the Bank of Japan would take further supportive monetary policy measures if necessary. The central bank is currently battling the coronavirus crisis with words and liquidity.

Disclaimer: This text is a column of the North LB. The content of the column is not the responsibility of 4investors and therefore does not necessarily have to agree with the opinion of the 4investors editorial team. Any liability and claims are therefore expressly excluded by 4investors!

At a glance – Chart and news: Japanese yen currency

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