Different rules

The positive reaction to the BoJ’s unusual monetary policies makes us wonder why there is such a pushback when developing countries like India try to break the rule book


Bank of Japan governor Haruhiko Kuroda. Photo: Bloomberg
Bank of Japan governor Haruhiko Kuroda. Photo: Bloomberg

Japan has now become a laboratory to push the boundaries of monetary policy. The Bank of Japan (BoJ) was a pioneer of quantitative easing. Interest rates close to zero were a reality in that country much before other rich economies. The Japanese central bank is currently one of the biggest investors in the Tokyo stock exchange. Almost none of this is recommended in the standard economics textbooks.

Last week saw another unusual move. BoJ once again said that it would increase the monetary base in a bid to push inflation that has been below target for many years. However, it also said that it would target the yield on 10-year bonds, initially at 0%.

Another way of putting this is that the Japanese central bank plans to set a target price for bonds.

The overall positive reaction to these unusual policies from eminent Western economists makes us wonder why there is such a pushback when developing countries such as India try to break the rule book during testing times.

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