As previously announced, Japan’s central bank governor Haruhiko Kuroda will step down in April 2023. As a result, observers no longer assumed interest rate policy would change. But that turned out to be a big mistake.
The central bank of Japan has now surprisingly tightened its interest rate policy. This step was a complete surprise and led to heavy losses in the capital markets. The effects of this approach are also felt in Germany, the Dax also yields.
What happened?
First, the Japanese central bank announced that it would let interest rates on Japanese government bonds rise more sharply. As if that were not enough, it announced its intention to significantly increase its bond purchases. At the same time, however, central bankers stressed that they did not want to jeopardize their target of zero interest rates on ten-year government bonds.
This mix of measures shows that the central bank of Japan does not want to deviate in principle from its ultra-accommodative monetary policy. The measures now communicated are apparently only intended to be a fine adjustment.
A first endurance test for a start?
The officials also pointed this out during the press conference. They see their moves as more monetary easing rather than rate hikes. But by then, the damage was already done. Stock markets reacted and slipped into the red around the world.
Analysts think it is possible that Japan wants to test whether it is possible to exit the ultra-loose monetary policy of the past decades without causing too much damage. In general, announcements were expected, but no concrete measures.
Price hike through the back door
Specifically, the Bank of Japan would like the yield on ten-year government bonds to fluctuate 0.50% around the target value of 0% instead of the previous 0.25%. Observers see it as the first step to joining the restrictive central banks of other countries. They call this measure a hidden backdoor rate hike.
Japan is seen as a sort of precursor to the situation that has only prevailed in Europe since the Lehman Brothers crisis. A zero interest rate policy and high public debt should maintain the economic cycle. But any possible deviation from this path has alarmed investors around the world.
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