For years, Japan’s central bank governor Haruhiko Kuroda vehemently defended his innovative monetary policy.
(Photo: REUTERS)
Tokyo In Japan, an epoch of monetary policy ends in tumult. Shortly before Japan’s government will announce his successor this week, central bank chief Haruhiko Kuroda, who held this office for ten years, is once again causing great irritation.
In 2016, Kuroda not only pushed the key interest rate into the red, but – unlike its colleagues at other large central banks – it began to keep long-term capital market interest rates under control with a definite goal: the yields on ten-year government bonds were only allowed to stay 0.25 percentage points around zero vary.
The central bank wanted to give the market room to act because it now owns half of the outstanding bonds thanks to the huge bond purchases. Shortly before Christmas, the about-face: Without warning, Kuroda doubled the interest rate range to 0.5 percent. Since then the markets have been going crazy.
Kuroda asserted that he only wanted to improve the functioning of the often anemic market. Interest rates are rising elsewhere. As a result, the Bank of Japan had to buy more and more bonds to defend its interest rate cap against hedge funds.
The problem: Investors interpreted Kuroda’s attempt to improve as a backdoor rate hike and attacked even harder. And suddenly Kuroda, who wanted to reduce the interference with his maneuver and thus increase his successor’s room for maneuver, had to absorb bonds at record speed to defend the new limit.
Kuroda’s likely successor, his deputy Masayoshi Amamiya, not only faces the challenge of redefining Japan’s monetary policy. He must also restore market confidence in the central bank.
It won’t be easy. On Monday, the interest rate for ten-year bonds rose again to 0.49 percent – close to the interest rate and credibility limit of the central bank.
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