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| Japan's Monetary Policy |
"The Bank of Japan has followed a much tighter monetary policy over the past 15 years than widely recognised."
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"This explains a significant part of the Japanese economy’s underperformance. Zero interest rates suggest policy accommodation, but a simple Taylor Rule indicates that short-term interest rates deserved to go negative. Moreover, judged by measures of quantity liquidity, the BoJ spent most of the period tightening. Admittedly, institutional factors embedded in the Bank of Japan Law prevented it easing, while its normal bill discounting was disrupted by the shift into surplus of the corporate sector. The strong Yen has been the best barometer of this monetary deflation. Recent signs of deliberate Yen weakness and the revised Bank of Japan Law (2001) are omens for an end to deflation."
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Crossborder Capital-Michael Howell
30.05.2007
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