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Note: I'm just a layperson. I'm probably going to be wrong on this. I had wondered just how long could BOJ keep their rate while US fed is now 4.5% and is sign

Note: I'm just a layperson. I'm probably going to be wrong on this. I had wondered just how long could BOJ keep their rate while US fed is now 4.5% and is signalling going up to 5% by the end of next year. As a result, the yen was getting weaker day by day and annual inflation was 3.7% in November. Inflation was what the Japanese government wanted and they've finally got it. But the problem now is that while the Japanese companies have been getting richer thanks to weaker yen, the wage has not been gone up to match the inflation resulting in the PM asking for firms to raise the wage. [1] Without the wage raise, this series of events has made the average Japanese citizen effectively poorer - and obviously people aren't too happy about it. I'm guessing this factored into making this decision. [1] https://www.japantimes.co.jp/news/2022/10/04/business/economy-business/japan-raise-wages-fight-inflation/ https://www.japantimes.co.jp/news/2022/10/04/business/econom... EDIT: Looking more into this, this move was kinda signalled in the September meeting. > Broadening price rises in Japan prompted some central bank policymakers to warn last month that inflation may overshoot expectations, highlighting the challenge Bank of Japan Gov. Haruhiko Kuroda faces in justifying ultralow interest rates. > One board member went as far as saying *the BOJ must eventually communicate an exit strategy* from ultraeasy policy, a summary of opinions at the September meeting showed. [emphasis mine] https://www.japantimes.co.jp/news/2022/10/03/business/boj-inflation-board-debate/ https://www.japantimes.co.jp/news/2022/10/03/business/boj-in...

timr 4y ago
They're making lots of noises about how this change wasn't actually to raise rates. Instead, the claim is that it was to "make the bond market work better". That's sort of hilarious, because the way that it "makes the bond market work better" is by making 10-year debt more attractive relative to other bond durations...by raising rates. Japan's government works this way on lots of major decisions. They telegraph the change waaaaaaaay in advance via subtle (but consistent) indirect language, then make a small version of the change while denying the importance of the change, then continue making more change by using the prior change to justify the new change. They love continuity.
HDThoreaun 4y ago
Central banks want to cause inflation when they believe unemployment is eminent. Inflation allows companies to effectively cut everyone's wages by x% instead of firing x% of workers. So the question is 1. are they right that there would be large scale layoffs absent the inflation? and 2. Is it better for everyone to get a pay cut or some people to get laid off?
- creakingstairs 4y ago
  > Central banks want to cause inflation when they believe unemployment is eminent Adequate inflation is also a sign of a growing economy. In Japan's case, Japan had full employment for over 20 years and they had no inflation for over 40 years. So no, I don't think curbing potential mass-unemployment was in their reasoning when they had decided to start QE in 2016. > Inflation allows companies to effectively cut everyone's wages by x% instead of firing x% of workers. I guess? but only because inflation often is related weaker currency, which increases export (making companies richer). This works for export-led economies like SK and Japan but their export growths are slowing down. > So the question is 1. are they right that there would be large scale layoffs absent the inflation? and 2. Is it better for everyone to get a pay cut or some people to get laid off? Well you already have your answer. There has been no mass layoffs absent inflation for a long time.
- pas 4y ago
  the US central bank's dual mandate is not universal, most central banks care about price stability and most central banks are small and most currencies/economies are a lot more vulnerable to exchange rate changes. because when an economic downturn starts in export oriented smaller economies the following happens. the reversal of a lot of capital/money flows (investment projects put on hold, sovereign and corporate bond market slows/halts), and then as a consequence of this exchange rate drops (the currency of the smaller economy depreciates) ... and at the same time, basically as the other side of this is that everyone buys US assets (reverse flow!), which pushes up the price of the dollar, which is an extra problem for developing economies, makes raising new debt a big problem (servicing rollover debt is a must at least, and developing economies want to outgrow their debt, so they have a high debt load usually), makes everything instantly more expensive. central banks act as dampers, and there are a bunch of papers about profitability of them, and they detail that by them buying assets when they are undervalued and selling when they are overvalued is their way to dampen these swings and make a profit. which in some cases gets sent to the government budget (eg. in case of Mexico). so yes, while there are asset bubbles that are a consequence of low interest rates, they are not the purpose, nor they are the main consequence of low interest rates, the main effect is economic growth, which helps to lower unemployment, and to avoid recessions (which easily leads to an unemployment spiral).
ShivShankaran 4y ago
andrekandre 4y ago
> Without the wage raise, this series of events has made the average Japanese citizen effectively poorer - and obviously people aren't too happy about it. and to top it off, the govt wants to raise taxes... again. they already raised sales tax to 10% from 5% previously and it hasn't gone over well afaik
- creakingstairs 4y ago
  I remember that. They started QE to increase consumption and they increased the sales tax? It was baffling to watch.

timr 4y ago

They're making lots of noises about how this change wasn't actually to raise rates. Instead, the claim is that it was to "make the bond market work better". That's sort of hilarious, because the way that it "makes the bond market work better" is by making 10-year debt more attractive relative to other bond durations...by raising rates. Japan's government works this way on lots of major decisions. They telegraph the change waaaaaaaay in advance via subtle (but consistent) indirect language, then make a small version of the change while denying the importance of the change, then continue making more change by using the prior change to justify the new change. They love continuity.

HDThoreaun 4y ago

Central banks want to cause inflation when they believe unemployment is eminent. Inflation allows companies to effectively cut everyone's wages by x% instead of firing x% of workers. So the question is 1. are they right that there would be large scale layoffs absent the inflation? and 2. Is it better for everyone to get a pay cut or some people to get laid off?

creakingstairs 4y ago
> Central banks want to cause inflation when they believe unemployment is eminent Adequate inflation is also a sign of a growing economy. In Japan's case, Japan had full employment for over 20 years and they had no inflation for over 40 years. So no, I don't think curbing potential mass-unemployment was in their reasoning when they had decided to start QE in 2016. > Inflation allows companies to effectively cut everyone's wages by x% instead of firing x% of workers. I guess? but only because inflation often is related weaker currency, which increases export (making companies richer). This works for export-led economies like SK and Japan but their export growths are slowing down. > So the question is 1. are they right that there would be large scale layoffs absent the inflation? and 2. Is it better for everyone to get a pay cut or some people to get laid off? Well you already have your answer. There has been no mass layoffs absent inflation for a long time.
pas 4y ago
the US central bank's dual mandate is not universal, most central banks care about price stability and most central banks are small and most currencies/economies are a lot more vulnerable to exchange rate changes. because when an economic downturn starts in export oriented smaller economies the following happens. the reversal of a lot of capital/money flows (investment projects put on hold, sovereign and corporate bond market slows/halts), and then as a consequence of this exchange rate drops (the currency of the smaller economy depreciates) ... and at the same time, basically as the other side of this is that everyone buys US assets (reverse flow!), which pushes up the price of the dollar, which is an extra problem for developing economies, makes raising new debt a big problem (servicing rollover debt is a must at least, and developing economies want to outgrow their debt, so they have a high debt load usually), makes everything instantly more expensive. central banks act as dampers, and there are a bunch of papers about profitability of them, and they detail that by them buying assets when they are undervalued and selling when they are overvalued is their way to dampen these swings and make a profit. which in some cases gets sent to the government budget (eg. in case of Mexico). so yes, while there are asset bubbles that are a consequence of low interest rates, they are not the purpose, nor they are the main consequence of low interest rates, the main effect is economic growth, which helps to lower unemployment, and to avoid recessions (which easily leads to an unemployment spiral).

ShivShankaran 4y ago

andrekandre 4y ago

> Without the wage raise, this series of events has made the average Japanese citizen effectively poorer - and obviously people aren't too happy about it. and to top it off, the govt wants to raise taxes... again. they already raised sales tax to 10% from 5% previously and it hasn't gone over well afaik

creakingstairs 4y ago
I remember that. They started QE to increase consumption and they increased the sales tax? It was baffling to watch.