Bonds are slipping and forecasts of a rise in US interest rates are rising sharply. Borrowing costs have soared in the UK, South Korea, New Zealand and a bunch of emerging markets. However, there are outliers. Among them, two of Asia’s most powerful economies: China, which took a major rate cut this week, and Japan, a country that has been battling deflation for a generation and where a top official is unusually opposed to a rate hike. was furious.
Even by the standards of increased transparency and forward guidance of past decades, Bank of Japan Governor Haruhiko Kuroda’s remarks were extremely straightforward: “Raising rates is unthinkable,” he told reporters after the BOJ’s policy meeting on Tuesday. An increase in borrowing costs was soon always considered unlikely. Inflation has been below the central bank’s 2% target for years. The modest mark-up in the bank’s projections this week still won’t be within striking distance of a long-elusive target in the near future.
Monetary leaders usually give themselves a few shakes, lest unexpected developments necessitate a change of course. Even more so today, when inflation exceeds desired levels in many economies. US Treasury notes have fallen amid speculation that the Federal Reserve may hike rates by half a percentage point in March. The prospect of any increase that month had recently come on the radar.
Was it necessary for Kuroda to be so forthright? He probably meant that, if the accommodation needed to be taken back, he would not be the one to do so. His second five-year term ends in April 2023. A new major may oversee a change in direction, assuming the underlying economic condition warrants one. In practical terms, Kuroda only needs to talk about the year ahead.
However, their bluntness serves two broad purposes. First, Kuroda is emphasizing that not every institution is a carbon copy of the Fed, the Bank of England or even the Reserve Bank of New Zealand. There are significant exceptions to the flamboyant thrust that looks set to define 2022. China on Monday announced its first rate cut in nearly two years, minutes before it showed a significant slowdown in growth at the close of 2021. Japan, like China, is doubling down on its struggle with Covid-19, while other powers are moving towards a kind. of coexistence. According to national broadcaster NHK, the government is set to place Tokyo and other parts of the country under a semi-emergency for several weeks. Second, Japanese policy makers will likely be relieved of inflation prospects, let alone a breach of the target. Further accelerating the pace of price increases has been an objective for the better part of three decades. The BOJ’s failure to do so on an ongoing basis has contributed to the caricature that Japan is destined for a prolonged decline. If the global tide leads to an increase in inflation and the need to restrain the economy, that is fine. Don’t get in the way
Not that Japan is completely untouched. The bank took a more robust view of inflation risks and raised its forecast for the first time since 2014. But only marginally: Consumer prices are projected to increase by 1.1% in 2022 and 2023, up from 0.9% and 1% previously estimated. Hardly earth-shattering when you consider the Fed’s preferred gauge of inflation, it rose 5.7% in November.
You can’t blame Kuroda for his idea. On some occasions, they were largely expected to lay the groundwork for eliminating incentives. For example, in a November 2018 speech, Kuroda came close to declaring the end of deflation and the beginning of a new era. A global recession and the escalating trade conflict between Washington and Beijing burst that thought bubble.
As he enters the home segment of his term, perhaps Kuroda’s final service will be to remind the world that not every economy operates in lockstep. Things can really be different in Japan.
This story has been published without modification in text from a wire agency feed. Only the title has been changed.
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