Monetary Policy Experiments in Japan

[Joe Leote]

This 8 page paper describes something new in the central bank policy of Japan:

https://www.nbc.ca/content/dam/bnc/en/rates-and-analysis/economic-analysis/forex.pdf

Apparently the BOJ is committed to yield curve control (YCC) policy despite supply chain problems and other sources of inflation after the Russian invasion of Ukraine. The Yen is trading much weaker on FX markets.

The term "risk-on" is used in the above paper. To me this means investors in the markets want to beat inflation and must take risk to do so. The liabilities of the Sovereign government and its central bank are the lowest risk instruments so the risk-on situation is an effort to sell these investments and purchase some other investments with more risk and potential reward. In theory the central bank can reduce its balance sheet position when there is risk-on in the markets and the sovereign government must increase the interest paid on government securities. But I think MMT might argue with this conventional reasoning.

Has Japan Been Following Modern Monetary Theory Without Recognizing It? No and yes:

https://www.levyinstitute.org/pubs/wp_985.pdf

Modern Monetary Theory holds that a currency issuing central government with floating currency can always control domestic interest rates. YCC is an effort to control the interest rate curve on sovereign bonds. I have not had time to read the above paper but I suspect it is relevant to the emerging situation in Japan.

Joe

[Joe Leote]

Audio is a little distorted. More global currency analysis of Yen, Yuan, Dollar, etc.

https://youtu.be/cHp57ybeg_g

The global economy has forces of inflation, due to supply chain disruptions and geopolitical risk, and forces of deflation, due to high debt levels or what I call debt saturated economies.

Joe