Grand Central: For BOJ, A Calculated Fade From Spotlight – Real Time Economics

The Wall Street Journal’s Daily Report on Global Central Banks for Friday, June 13, 2014:

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When Shinzo Abe became prime minister a year and a half ago, he famously shoved the Bank of Japan into the hot seat, putting the onus largely on the central bank to pump up the economy. Now, the BOJ is returning the favor.

This week’s monetary policy meeting was a mere footnote in the economic debate heating up in Tokyo. The committee kept policy on hold, as expected, and drew no visible internal or external second-guessing for doing so. The nine members spent relatively little time even discussing the question. The meeting broke up after about two and a half hours Friday morning, tying the May session for the shortest this year.

As the European Central Bank intensifies its campaign to block deflation, the Bank of England moves markets with talk of imminent rate hikes, and the Federal Reserve heads into its own rate-raising debate, the BOJ may currently be the most boringly predictable major central bank in the world.

For now, the spotlight in Japan is fixed squarely on Mr. Abe’s package of structural reforms, being finalized for month-end announcement. And BOJ Gov. Haruhiko Kuroda has helped change the conversation in that direction — both by successfully persuading markets that he’s totally comfortable sticking for some time to come with the easing program he laid out last year, and by talking increasingly openly about the limits of monetary policy and the need for Mr. Abe to do his share.

Mr. Kuroda most prominently launched that campaign in a late May Wall Street Journal interview, when he said that, going forward, “the major work to be done is by the government and the private sector.” At his post-meeting press conference Friday afternoon, he kept up the heat, saying the BOJ “hopes that the government will accelerate its growth strategy and new policies for accelerating growth will progress firmly.”

The logic of Mr. Kuroda and his colleagues: the central bank is successfully doing its bit to end more than a decade of deflation, and to steer the economy to higher prices. But the BOJ can’t do much to raise growth — that’s the government’s job.

It’s too soon to say how Mr. Abe’s doing. He and his aides will spend the next couple of weeks locked in intensive negotiations with lawmakers, bureaucrats, and lobbyists hammering out details of his new package. Mr. Abe announced Friday the broad outlines of an agreement to cut the corporate tax rate. Earlier in the day, his deregulation panel backed down from a plan to break up the powerful agriculture lobby, which has played a major role blocking free-trade pacts and other reforms. One step forward, one step back.

One way or another, Mr. Kuroda will get his turn back at center stage before the year is out. Most private economists think he will fall short of his inflation target, and that decelerating prices in autumn will force him to add to his stimulus program. He will also have to explain soon whether the BOJ plans to add still more asset purchases next year. As of now, the central bank’s detailed forward guidance runs out in December.

But for the time being, Mr. Kuroda seems happy to be watching and commenting from the wings.

-By Jacob M. Schlesinger


WSJ Survey: Economists See First Fed Hike in a Year. The Federal Reserve will likely begin raising interest rates at a gradual pace in June of 2015 after leaving them near zero for an unprecedented six-and-a-half years, according to the median estimate of economists surveyed by The Wall Street Journal.

Fed Proposes Changes to Annual Stress Test. The Fed wants to restrain banks from buying back shares and hiking dividends if they don’t fulfill their stated goals to shore up financing. In a proposal released Thursday, the central bank it would limit banks’ ability to distribute dividends or buy back shares if firms don’t raise the levels of capital proposed as part of their official capital plan submitted to the central bank.

Fischer Confirmed as Fed Vice Chairman. The U.S. Senate on Thursday confirmed three presidential nominations to the Fed‘s board, including Stanley Fischer to be vice chairman and Lael Brainard to a seat on the seven-member board.

EU Lobbies Yellen on Bank Debt Rule. A senior European Commission official told Fed Chairwoman Janet Yellen he will push for an in-depth study before moving forward with a pending rule on bank debt, suggesting it may be difficult for U.S. officials to forge an international consensus on the rule this year.

Carney Says BOE Could Raise Rates Sooner.  Bank of England Gov. Mark Carney said Thursday interest rates in the U.K. could rise sooner than investors expect, sending the clearest signal yet that Britain’s central bank is inching closer to calling time on five years of record-low borrowing costs.

Sterling Surges After BOE’s Carney Signals Rate Hike. Sterling surged against a basket of currencies Friday, buoyed by the clearest signal yet that Britain’s central bank is inching closer to ending five years of record-low borrowing costs.

Bank of England to Get New Powers to Cap Home Purchase Loans. The U.K. is to hand the BOE sweeping new powers to cap how much would-be home buyers can borrow, underscoring officials’ deepening concern over the risk to the British economy from another debt-fueled property boom.

Bank of Japan Raises View on Overseas Economies. The Bank of Japan raised its view on overseas economies Friday, setting the stage for a future pickup in exports that the central bank has long hoped for to make the country’s economic recovery sustainable. As was widely expected, the BOJ also decided unanimously to continue its easing campaign of increasing the country’s monetary base at an annual pace of ¥60 trillion to ¥70 trillion ($590 billion to $690 billion) to stamp out deflation.

Japan Retreats from Farm Cooperative Overhaul Plan. A panel under Prime Minister Shinzo Abe retreated from plans to overhaul Japan’s agricultural cooperatives, in a move that means small farmers will keep a powerful political voice against efforts to introduce more competition from corporations.

ECB’s Weidmann Warns Against QE. Bundesbank President Jens Weidmann warned Thursday against using central bank money to purchase government bonds, suggesting the European Central Bank would face stiff opposition from its most powerful member bank if it decided to engage in such a policy that has been used aggressively by central banks in the U.S., Japan and U.K.

More from the ECB:

-Belgian Central Bank Gov. Luc Coene said the country needs to press ahead with economic reforms.

– Slovenia’s central bank head, Bostjan Jazbec, said the ECB is willing to engage in additional stimulus measures if needed.

-A guide to gauging the impact of the ECB’s negative deposit rate.

Bank of Canada Governor Warns of Financial Risks From Housing Sector. Canada’s top central banker said Thursday that high home prices and record levels of household debt remain the biggest risks to the country’s financial system.

Data Illustrate the Mixed Picture of China’s Economy. Industrial output in China rose slightly in May, while housing sales showed further weakness, part of a mixed economic picture for the world’s second-largest economy.  Economists React.

No Miracle in the Offing for China’s Housing Market. There might have been a mild improvement in the latest property data for May, but don’t say ‘green shoots’ too quickly.

Has China got an external-debt problem? Not likely. China’s growing taste for offshore financing has come into focus following revelations that much of the collateral behind billions of dollars in foreign loans was pledged for multiple loans.

Risky Business in China’s Financial System. Is China heading for a financial crisis? Some risk indicators have risen markedly over the past twelve months: Interbank rates are more volatile, with liquidity shortages increasingly common; there have been a few minor bank runs; and the country experienced its first corporate default in recent history earlier this year.


The Journal asked economists when they expect the Fed to begin raising short-term interest rates. Here’s the spread of their estimates:


-ECB’s Coeure speaks at 1230 GMT in Dubrovnik


What Drives the Revolving Door Between the Government and Wall Street? Do government regulators go easy on Wall Street to secure themselves a high-paying job in the private sector? That debate, which has been raging for years and intensified after the financial crisis, often takes place in anecdotal terms. A new paper from the New York Fed seeks to inject more data into the discussion — and its findings suggest that the revolving door may be driven by an entirely different force.

Grexit Tweets Deepened Crisis. A new paper, published by economists from Greece’s International Hellenic University, the U.K.’s University of Liverpool and the University of Macedonia, examines whether tweets, Facebook posts, blogs and Google searches influenced euro-zone bond markets during the darkest days of the currency area’s debt crisis. Their conclusion? That a flurry of online activity—or more specifically, the information contained in those tweets, searches and posts–pushed up the borrowing costs of Greece and other troubled nations.


The inflation dragon may be about to reawaken, writes Spencer Jakab in the Journal. “Three decades after Paul Volcker’s Federal Reserve slew what he called the ‘dragon’ of inflation, its demise is being hotly debated. Coming reports on Friday and Tuesday about producer and consumer prices, respectively, for May could lend at least some ammunition to those fearful of more rapid gains.”

Central banks should abandon inflation targeting and try “positive ambiguity, writes Stephen King, HSBC global chief economist, in the FT Thursday. “Central banks should commit to a steady rise in prices in the medium to long-term; but, depending on other macroeconomic variables, they should also tolerate sustained departures from target…‘Positive ambiguity’ would emphasize that interest rates might rise – or fall – for a host of reasons not necessarily connected with the near-term inflationary outlook: credit growth, balance of payments, asset price inflation and so on.”


-Chile’s central bank on Thursday left its policy rate unchanged at 4%

-China’s total credit growth decelerated in May despite a surge in bank lending, as a crackdown on the country’s shadow-banking sector choked off unofficial financing activities.

-Greece’s central bank expects the nation’s economy will expand by about 0.5% this year, ending a six-year recession.

– Ireland’s recovery is underway, but its fragile lenders and the large amounts of debt held by households pose considerable threats to stability, according to the Irish central bank

-The euro zone’s trade surplus widened in April compared with the same month a year earlier as imports fell more rapidly than exports.

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13 June 2014 | 11:16 am – Source:

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