Nagai Yoichi: The nearly 10-year-long large-scale monetary easing policy led by Bank of Japan ( Central Bank of Japan) President Haruhiko Kuroda has actually come to an end. The sudden " interest rate hike " that no one expected reflected Kuroda's troubles in making decisions. On the afternoon of December 20, the Nikkei Stock Average stock price plummeted, and people were relieved by the rapid appreciation of the yen and the depreciation of the US dollar. There is no accelerated "Japan sell-off" (selling of government bonds and selling of the yen) in the market.
Recently, criticism of the side effects of large-scale monetary easing policies has become increasingly intense, such as the decline in the functions of bond and stock markets and the depreciation of the yen accompanied by interest rate differentials between domestic and foreign countries. The biggest drawback is that the trend of being satisfied with low interest rates and despising fiscal discipline has intensified. Public opinion surveys show that most Japanese people support increasing defense spending, but oppose increasing taxes and cutting social security fees. The effect of large-scale monetary easing has begun to run counter to its intentions, and Kuroda's sense of crisis is expected to become increasingly serious.
The Bank of Japan and the Ministry of Finance
Regarding the adjustment of long-term and short-term interest rate operations (yield curve control, YCC) to expand the fluctuation range of long-term interest rates from about ±0.25% to about ±0.5%, some people in the market believe that "such measures will not help quickly return to normal." But large-scale monetary easing is indeed beginning to come to an end.
"It would be a failure to end deflation without getting rid of it. In this case, a surge in long-term interest rates and a fall in stock prices may occur at the same time. Not only will there be an economic recession, but it will also trigger a financial crisis ." Regarding the ending of long- and short-term interest rate operations, a market-related person who supports " Abenomics " recently reminded this risk in a report to investors. Since Japan is an important measure of global interest rates, rising interest rates in Japan will ripple across the world.
Regarding Japan’s sudden change of policy, foreign investors will also think that “Japan is not a country that really wants to get rid of deflation”, and there may be a brief wave of selling Japanese stocks . The handling of listed investment trusts (ETFs) held by the Bank of Japan will also become a topic of discussion.
But there are some positives that far outweigh these negatives. First, this is a wake-up call for lax finance. At Japan’s regular parliament in 2023, it is expected that the issue of financial resources for defense expenses will be highly controversial. If interest rates are added to the preconditions of the issue, it will become an important cornerstone to support fiscal discipline.
The second is to eliminate uncertainty. With the situation in Ukraine in a quagmire and the world economy facing recession, the long-term and short-term interest rate operations that have been refusing to dialogue with the market and disregarding the advancement of the exit strategy are now the source of uncertainty. The Bank of Japan's stance of adjusting its policy closer to the market reassures stock investors, market participants and business operators. In the near future, the market should understand Kuroda's wise decision.
Nihon Keizai Shimbun (Chinese version: Nikkei Chinese website) Nikkei QUICK News Editorial Committee Yoichi Nagai
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