Set 22, 2016

Japan move shows limit of central bank powers

Japan's central bank has revealed yet another exotic weapon to generate growth, but sceptics say all it shows is that the armoury is empty and a long battle against deflation is being lost.


With the European Central Bank apparently set to embark down a similar path and the Federal Reserve treading very lightly, some analysts are saying the Bank of Japan's move is an admission of defeat and a warning of the limits of central bank power.

After a hotly anticipated meeting on Wednesday, the BoJ said it would switch its emphasis from interest rates and concentrate its firepower on 10-year government bonds. Governor Haruhiko Kuroda said the bank would buy as many or as few of these benchmark instruments as necessary to ensure the yield -- the interest rate paid to holders -- remained steady at around zero.
He also pledged he would cut back on the number of longer dated bonds the bank holds. That should reduce the price of long-term securities, which -- in turn -- should increase their yield.

This so-called steepening of the yield curve is the latest effort to convince Japanese consumers that the price of goods and services will rise in the future.
The idea is that if people think prices will rise, they'll rush out to spend their money, causing actual price rises.

Photo: Bank of Japan Governor Haruhiko Kuroda unveiled new measures to boost Japan's weak inflation but analysts say he is low on credibility

By Afp
Published: 10:09 GMT, 22 September 2016