Japan’s extraordinarily expensive defence of its monetary policy

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Japan’s extraordinarily expensive defence of its monetary policy
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The Bank of Japan’s difficult decisions are not going away

Bank of Japan gave speculators an opening. By lifting its cap on ten-year government bond yields from 0.25% to 0.5%, the central bank raised the prospect that it would abandon its “yield-curve-control” policy entirely. Since then, officials have been put to the test by increasingly uncooperative bond markets. Thehas been forced to make enormous bond purchases in an attempt to drive down the yield, buying ¥9.5trn yen on January 12th and 13th alone.’s next meeting.

Japanese inflation has increased, too, but only to 4% year on year in December. That is less than half the peaks in America and the euro zone. And much of the surge is the result of the weak yen, which hit a 32-year low against the dollar in October, and high energy prices. Thus theThe central bank’s decision to lift the cap on bond yields in December was an attempt to improve liquidity and facilitate more trading. It seems to have backfired.

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