Yesterday’s post
Closer to ZIRP, Liquidity Trap, Deflation was all about the US.
Consider this:
The Japanese are still stuck in ZIRP… in the same liquidity trap… and still alternating between mild inflation and mild deflation.
Bank of Japan Cuts Rate to 0.3% to Fend Off Prolonged Recession: “The Bank of Japan cut its benchmark interest rate to 0.3 percent to help stave off a prolonged recession.
Governor Masaaki Shirakawa cast the deciding vote to lower the key overnight lending rate from 0.5 percent after four of the eight board members dissented, the central bank said in Tokyo today. Three wanted to cut the rate to 0.25 percent, and one voted to leave it unchanged, Shirakawa said.
Shirakawa, 59, came under pressure to lower borrowing costs for the first time in seven years after the Nikkei 225 Stock Average slumped to the lowest level since 1982 on concern that the global financial rout would deepen Japan's downturn. Until today, the bank had kept rates unchanged in the face of cuts by counterparts worldwide, arguing they were already “very low.”
A rate cut will probably do little to prop up the economy; nevertheless the bank was probably fearful they'd be viewed as clinging to an overly rigid stance in the middle of a global crisis” if they didn't move, said Teizo Taya, a former Bank of Japan board member who now advises the Daiwa Institute of Research.””
Those of you that mistakenly think the ‘liquidity’ the central banks are injecting will result in a hyper inflationary explosion, think again. The Bank of Japan (BOJ) employed everything including
quantitative easing in a desperate attempt to re-flate and got
NOTHING.
“Inflation will evaporate next fiscal year, the bank said. Core consumer prices will rise 1.6 percent in the current fiscal year and fail to increase in the following 12 months, it said. Prices will gain 0.3 percent in the year starting April 2010.”
Ben Bernanke is already employing the exact same strategies. The various liquidity facilities are the very mechanisms that implement quantitative easing. The interview below sheds light on how the BOJ did it. Already the similarities are clear.
Tomoya Masanao Discusses the End of Japan's Quantitative Easing:
In March 2001, the Bank of Japan (BoJ) began an historic new monetary policy known as “quantitative easing” in an effort to revive Japan’s economy and end the deflationary decline in consumer prices. Five years later, on March 9, the BoJ ended the quantitative easing policy, satisfied that the Japanese economy was on the path to stable, reflationary growth. In the interview below, Tomoya Masanao, PIMCO’s head of portfolio management in Tokyo, discusses why the BoJ ended quantitative easing and what he expects for the future.
Q: What did the Bank of Japan’s “quantitative easing” policy entail?
Masanao: In setting monetary policy, central banks normally target a specific short-term interest rate, such as the Fed funds rate in the U.S or the uncollateralized overnight call rate in Japan.