Tuesday, January 22, 2013

BoJ caves!

Tha austerity ghouls took it on the chin today.  In one of the more encouraging developments, the Bank of Japan actually honored a request by a democratically elected official.  As NOTHING so makes a mockery of democracy as central bank "independence" (arrogance? totalitarianism?) this is very good news indeed.

Note of at the end of this first article, some German toady warns of the dangers posed by government "disturbing abuses" in the affairs of the central banks.

Japan opens monetary flood gates, seeking to spur economy

DW 22 JAN 13

Japan's central bank has announced it will ease monetary policy and accept higher inflation, hoping to spur an economic upswing. New Prime Minister Shinzo Abe, who requested the move, called it "epoch-making."

The Bank of Japan (BoJ) adopted a new inflation target of 2 percent and announced plans for an indefinite asset-purchasing program on Tuesday.

The central bank said it had changed its previous 1-percent inflation goal to a more "explicit target" because it had become more aware of the importance of flexibility with regard to monetary policy.

The policy shift was announced in a rare joint statement with the government, and followed stern calls by Japan's new Prime Minister Shinzo Abe for the central bank to be more aggressive in spurring growth in the world's third-largest economy.

"In terms of a bold review of monetary policy, this statement is epoch-making," Abe told reporters in Tokyo on Tuesday.

Japan is beset by a series of economic woes, including falling exports, the strength of its national currency, tensions with China and deflation. Japan's national debt is worth more than twice the country's annual economic output, and is second only to the US in terms of sheer scope.

Since the mid 1990's deflation has persistently hurt the economy as falling prices cut into corporate profits, forcing firms to cut jobs and put off capital investments to generate growth.

Therefore, the Bank of Japan said it would expand an existing asset-buying - or "quantitative easing" program. Previously valued at 101 trillion yen (84 billion euros) for the year 2013, the central bank said it would increase the monthly limit to 13 trillion yen, and abolish the termination date. This means the bank could theoretically provide such funds for an indefinite period.

In addition, the bank voted unanimously to hold key interest rates at zero to 0.1 percent, expressing the hope this measure might spur economic growth of 2.3 percent for the next financial year through March 2014, instead of a current estimate of 1.6 percent.

Controversial measure

However, BoJ's governing board didn't adopt its new policy unanimously as two of its nine members voted against the measures.

Their action reflects increasing global concern about government interference in central bank affairs.

On Monday, German central bank chief Jens Weidmann lashed out at the governments in Japan and Hungary for what he described as "disturbing abuses" of national central banks to force through aggressive monetary policy.  More
And now the "markets" speak.  Yes those wonderful, uncorrupted, all-wise markets run in the interests of pirates.

Markets Tumbling, Yen Soaring After Historic Move By The Bank of Japan

Joe Weisenthal | Jan. 22, 2013

The big story: Late last night, the Bank of Japan unleashed its widely expected, but historic easing. It set an inflation target of 2%, and announced unlimited QE.

As it was expected, the yen spiked on the news, and the Nikkei eventually ended lower.

Meanwhile European markets are tumbling, with big indices off over 1%.

The US market was closed yesterday, so it will be playing catch up. more
Hey, this idea that maybe central banks could accomplish something other than just wreck things might even spread to USA.

Minneapolis Fed Chief Has A Killer Explanation Of How The Fed Could Provide Even More Stimulus

Joe Weisenthal | Jan. 15, 2013

Minneapolis Fed Chief Narayana Kocherlakota used to be among the more hawkish Fed chiefs.

Now he's among the more dovish.

And in a speech today he provides an answer of how the Fed could provide even more stimulus.

Basically, the Fed could say that it won't stop easing until unemployment hits 5.5%, rather than the current 6.5% target.

Here's what he said in a speech today. Understanding this is crucial to understanding the Fed's current thinking:
Based on my outlook for the next two years, I’ve concluded that the FOMC would better fulfill both of its congressional mandates by adding more monetary policy accommodation. But how best to do so? In its current forward guidance, the FOMC has stated that it expects the fed funds rate to remain extraordinarily low at least until the unemployment rate falls below 6.5 percent. In my view, it would be appropriate for the FOMC to provide more needed stimulus by lowering the threshold unemployment rate from 6.5 percent to 5.5 percent.

To see why I say so, consider two possible scenarios. In the first, the public believes that the FOMC will begin raising the fed funds rate once the unemployment rate hits 6.5 percent. (To be clear: This belief is consistent with, but not necessarily implied by, the FOMC’s current forward guidance.) In the second, the public believes that the FOMC will defer the initial increase in the fed funds rate until the unemployment rate hits 5.5 percent. The higher unemployment rate in the first scenario means that monetary policy will be tightened sooner, which, in turn, will lead to the unemployment rate being higher for longer. Foreseeing that, people will save more in the first scenario than in the second, to protect themselves against these higher unemployment risks. Because they save more, they spend less, and there is less economic activity.1

Thus, lowering the unemployment rate threshold to 5.5 percent would increase the demand for goods and thereby push upward on both employment and prices. Would this extra monetary stimulus result in an undue amount of inflation at some point in the future? Here, I find the recent historical evidence to be comforting. The following chart documents that the medium-term inflation outlook has not risen above 2¼ percent in the past 15 years, even though the unemployment rate was at times below 5 percent.2 To me, this historical evidence suggests that, as long as the unemployment rate remains above 5.5 percent, the medium-term inflation outlook will stay close to 2 percent.
Crucial concept. more

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