Lessons From Japan

by Dollars and Sense

Interesting Article in the International Herald Tribune on Japanese monetary policy (both yesterday's version and that the more longer-term variety stretching back to the serious deflation days). Here's the most pertinent point:


"According to Jerram, of Macquarie, one lesson of Japan's experience with such indirect measures is that they work only if bankers are confident that they will remain in place until the economy actually revives. To make this clear, he said the bank should accompany such an easing with public commitments not to raise borrowing costs again until some target is met, such as a rebound by consumer prices."


Not sure if our program, such as it is, is geared toward this sort of option--at least not yet.

Bank of Japan cuts rates for the first time in 7 years


By Martin Fackler
Friday, October 31, 2008


TOKYO: The Japanese central bank cut its benchmark interest rate for the first time in seven years on Friday, joining earlier moves by the U.S. Federal Reserve and other central banks to soften the brunt of a possible global recession.


The Bank of Japan's policy board voted to lower the overnight lending rate between banks by 0.2 percentage point to 0.3 percent, reducing borrowing costs in order to rekindle growth in the country, which has the largest economy in Asia. The bank also seemed to confirm fears here that Japan was heading into a recession by lowering its forecasted growth rate for the current year to around zero percent, citing higher energy prices and weakening demand for Japanese exports.


The loosening Friday was also aimed at easing a growing credit crunch in Japan, which had long seemed immune to the international financial contagion. As an additional credit-easing measure, the bank said it would start paying interest on some of the reserves that commercial banks keep at the central bank, a step that would provide more cash to lenders.


This was the first interest rate cut during the current financial crisis by Japan, where short-term interest rates, already near zero, have constrained the central bank's room for maneuver.


Read the rest of the article

Labels: Bank of Japan, banking system, financial crisis bailout, Monetary Policy, recapitalization

 

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10/31/2008 11:53:00 AM