Thursday, June 14, 2012

The BOJ's Holding The Line And Why Diet Members Do Not Like It

Someone has finally printed an article in English which defends the Bank of Japan's independence and policies. Predictably, the responsible publication is the Financial Times (E) which as recently as yesterday I was chiding for its tendency to plunge its Japanese interview subjects into hot water.

Amidst all the noise "that the bank should be doing more" it is refreshing to read an article observing that the BOJ is doing all that can be done and still maintain the appellation of "bank." The BOJ is not a berserk ATM responsible for counteracting the incredibly bad fiscal policies of countries around the globe. Since the BOJ cannot succeed in this endeavor it is pointless for the bank to attempt it.

And a cleverly run bank the BOJ is, having posted in fiscal 2011 an unexpected and tidy profit in its bond dealings. (E)

As for reports that Diet members are preparing legislation to rein in the BOJ's independence, regranting the Finance Ministry the powers the MOF lost over the BOJ's policies -- or merely to terrify the BOJ into pre-emptively ceding part of its independence from government interference so as to preserve the larger portion of its independence -- the drafting of legislation is what lawmakers do, whether or not such legislation will have significant effects on the economy's performance or not. (E)

Frankly, noting that legislators are preparing bills with the intention of curbing the BOJ's independence is a little like noting that bonobos have sex. (E)

That legislators would want to be seen as doing something, anything, to arrest deflation is understandable. Deflation, as analyst extraordinaire Naomi Fink recently pointed out, diminishes the willingness of companies to borrow (increasing, as it does, the real interest rate borrowers pay) and hammers the stock markets (by inducing companies to raise funds through the issuance of new equity, diluting the value of the holdings of existing shareholders).

That deflation simultaneously delivers real, nontaxable returns on savings is something legislators possibly do not know, have forgotten or ignore as it has no impact on their being able to hit up corporations into paying for fundraising party tickets or for candidates to win the votes of those who live on the margin and are thus unable to save.

So rather than being about doing something, BOJ bashing seems to be about appearing to be doing something.

1 comment:

sigma1 said...

If they were to go as far as installing into the governing legislation a specific inflation target like they have in most developed economies that would acceptable, but it scares me how little consideration they seem to have for the idea of central bank having political independence - as if it was just one normal policy option among many that they can select.