In Japan, benchmark interest rates are negative, quantitative easing is continuing–yet the hawks seem to be winning the argument for the future of monetary policy, Mike Bird writes for Heard on the Street.
— Last week the BOJ offered its most lacklustre forecast for inflation under Gov. Haruhiko Kuroda.
— Paradoxically, however, the board’s forward policy guidance took a hawkish turn.
— It pledged to keep the short-term deposit rate at minus 0.1% until the spring of 2020…
— …replacing previous guidance that simply referred to an extended period.
— With very little fanfare, the speed of expansion in the BOJ’s balance sheet has slowed.
Why This Matters
One implication: investors shouldn’t expect much help from the Bank of Japan if PM Shinzo Abe’s proposed sales tax throws economic growth off course. In 2014, an increase to the tax hurt Japan’s recovery but was offset by no-holds-barred bond purchases. If the government goes ahead with another increase, the economic fallout this time could be severe.
A fuller story is available on WSJ.com
WSJ City: The news, the key facts and why it matters. Be deeply informed in less than five minutes. You can find more concise stories like this on the WSJ City app. Download now from the App Store or Google Play, or sign up to newsletters here http://www.wsj.com/newsletters?sub=356&mod=djemwsjcity
Source: Read Full Article