Dollars and Jens
Thursday, March 09, 2006
Japanese Interest rates
The Bank of Japan will get less profligate with the quantitative easing, though interest rate targets will remain at 0 for the time being. Japanese bond yields took off, with the ten-year approaching the ten-basis-point mark. But, you know, not quite making it there.
Yet quantitative easing was accompanied by some even more unorthodox policies, which may indeed have helped to reflate the economy.It seems to me that buying foreign currency (e.g. dollar-denominated paper) for yen — or much of anything else for yen, for that matter — could have accomplished this, too. The point is simply to get yen out there; if giving the banks arbitrary quantities isn't doing it, the public markets will.
First, the bank massively increased its purchase of government bonds, from Y400bn a month to Y1,200bn. Even though it bought these from the market, rather than directly from the government, its purchase of roughly one-third of all new debt made it hard to avoid the impression that it was printing money to underwrite public spending.
Then in September 2002, when the Nikkei average of leading shares had plunged below 9,000 – compared with a high 12 years before of 40,000 – the BoJ took an even more drastic step. It started spending up to Y2,000bn on buying shares in unnamed companies. That helped prop up the stock market.
Many economists claim that another effect of the tide of money spewed out by the central bank was to help depreciate the yen and stimulate exports.