BoJ statement and USD/JPY
|The Japanese economy is recovering moderately. In 2012, the economy was recovering moderately. During the Fukishma nuclear reactor disaster, the economy was recovering moderately. At the October 2022 intervention, the economy was recovering moderately.
The BOJ highlights correctly the natural rate of interest as a source to the health of the economy. Wicksell suggested then to subtract the long term interest rate at 50 years from Inflation to determine if an economy was over or underperforming and where was a determination to the proper level of the interest rate.
BOJ interest rates 2.51 at the 26 year monthly average minus 2% Inflation offers a Natural rate at 0.5. Quite positive and extraordinary. The United states offers a natural rate in the vicinity of 7% to 9%. Japan contains a healthy economy while the United States sits on the floor of disaster and growing worse by the month.
What happened to the United States is the Natural Rate of interest raised from 1.64 in 2016 to 1.07 in 2017, December 2021 was negative 4.19.
The United States problem is the Fed as interest rates were set at wrong levels to Inflation. Greenspan from 1987 to 2006 was just as guilty as Powell, Big Sis Yellen and Bernanke. Greenspan in 19 years had 3 decent years of Inflation and 16 years of extraordinarily high Inflation.
The genius and correct BOJ policy is found in this statement. Shifting to a framework in which the Bank guides the short-term interest rate as a primary policy tool from one that deployed all unconventional instruments.
And. changes in the monetary policy framework proposed at this MPM will not be a regime shift toward monetary tightening, but rather a part of efforts to achieve the price stability target.
Traditional monetary policy as independent institutions was add and subtract money into the system as required. Then Central banks went activists by Quantative Easing , tightening and purchase of financial instruments. Meanwhile, the Inflation and interest rate level problem was never settled. Activism proved a failure.
Market prices traveled from free floating instruments to tightly controlled.
USD/JPY is a good example.
Yesterday: 153.32, 152.94, 152.07, 151.83, 151.63, 151.02, 150.76, 149.90.
Today. 153.76, 152.83, 151.88, 151.81, 151.54, 151.03, 150.97, 150.03, 149.13.
USD/JPY held at 151.00's all week inside a range from 149.00's to 153.00's.
What the BOJ is imparting is not much will change in the future. Systems and strategies must adjust to more tightly controlled ranges, same as 2022, 2016 and 2014.
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