Even as its liquidity provision passes its 25th year, the Bank of Japan looks unlikely to tighten monetary policy in step with other central banks until deflation is beaten and the Ministry of Finance can end its reliance on ultra-low yields to control government debt costs. Neither of these looks likely to happen in the new governor’s five-year term starting on 9 April, and possibly beyond it.
Neil Williams, chief economist, and Taylor Pearce, economist at OMFIF, discuss the tensions around the BoJ’s yield target and the impact that even more quantitative easing may have. With central bank independence looking blurred and fiscal costs a growing consideration in monetary decisions, is Japan is the best test case we have? https://www.omfif.org/2023/02/japan-25-years-of-adding-liquidity-and-counting/