There is interest in the candid remorse of the Australian central bank,
which "caused confusion at the exit and damaged the central bank's reputation ."
As part of monetary easing, Australia used a method similar to that of the Bank of Japan until November last year.
A "summary" looking back on that policy was published.
This document states that the market sector of a financial institution has also instructed its subordinates to read it in preparation for the BOJ's policy revisions.
What kind of lesson is written?
(Neil Kato, Reporter, Ministry of Economic Affairs)
Attention to Australia
The stage is Australia, not America or Europe.
As part of monetary easing, the central bank continued to use a method called "yield curve control" similar to that of the Bank of Japan until November last year.
This method is abbreviated as YCC, which is an acronym for English.
In Japanese, it is called long- and short-term interest rate manipulation.
Central banks in each country have traditionally tried to adjust "short-term interest rates" to influence the economy and prices.
In addition to this, the long- and short-term interest rate manipulation is to manipulate the "long-term interest rate".
The Bank of Japan introduced YCC in 2016.
Other than that, there are only examples of Australia and the United States, where a large amount of government bonds were issued to raise war expenses during World War II.
For this reason, Australia is paying attention to the abolition of this YCC, while the BOJ's policy revision speculation is smoldering in the market.
Most were working
Australia's YCC was introduced in March 2020.
We decided to introduce it because of the sense of crisis that the spread of the new corona infection could lead to a serious situation in the domestic economy and financial system.
The central bank has announced the implementation of YCC, which keeps yields on 3-year government bonds low in addition to short-term interest rates.
He also promised, "We will not raise rates until inflation stabilizes at 2% to 3% for full employment."
As a result, mortgages were kept low, and the effect of supporting the financing of small and medium-sized enterprises was also achieved, and the economy recovered at an unprecedented pace.
In a summary released by the central bank, YCC states that "mostly it worked."
Confusion at the exit ... Damage to central bank reputation
On the other hand, the summary also points out that "at the exit, it caused turmoil in the market."
The opportunity was October 27, last year.
The consumer price index is well above market expectations, putting upward pressure on interest rates in the bond market.
Originally, the central bank immediately bought government bonds to curb the rise in interest rates, but at this time it neglected the rise in interest rates.
In the bond market, which felt signs of policy revision, selling called for selling, and the yield on three-year government bonds, which the central bank had said to keep at 0.1%, soared to 0.77%.
It was a few days later that the central bank decided to abolish the YCC.
At that time, a surprise voice was heard within the Bank of Japan, saying, "It is unthinkable to change the policy of purchasing government bonds on the spot without going through the formal process of a meeting to decide monetary policy."
The Australian central bank "damaged the central bank's reputation," recalls the turmoil.
On the other hand, he said that if he tried to curb the rise in interest rates just before that, even though there was a high possibility of policy revision at the upcoming meeting, he would send a false message to the market and could cause further confusion. is.
He pointed out that he should have considered in detail in advance in preparation for such a situation, and recalled that it was appropriate to eliminate it earlier.
Difficult to stop ...
However, it can be glimpsed from the summary that it was very difficult to decide to abolish it.
September 2020, six months after the spread of the infection.
Data showed that the recession wasn't as much of an initial concern.
However, the vaccine is still under development, and the central bank considers it to have a high downside risk.
July 2021.
The economy and employment have improved more than expected, and the abolition of YCC has been discussed within the bank.
However, the central bank has not changed its view that it will still take time to reach full employment and inflation targets.
We have determined that the outlook remains uncertain due to the spread of the Delta strain in Sydney, the largest city, and lockdowns.
In summary, he frankly vomits the difficulty of making decisions while he cannot see the future.
He concludes, "It is unlikely that we will do YCC again in the future."
The lesson of Australia is
How does the Bank of Japan take the lessons of Australia?
Governor Kuroda said at a press conference in July:
"Australia is targeting 3-year government bonds, and if the outlook of market participants changes due to economic and price improvements, it will directly lead to fluctuations in interest rates, but the Bank of Japan is targeting 10-year government bonds, so it is confusing. In
the future, I would like to use this as a reference when achieving the price stability target of 2% and amending the YCC. ”
However, there is already a bud of confusion in Japan.
When the market became more enthusiastic about policy revisions in June, long-term interest rates exceeded the BOJ's upper limit of about 0.25%.
The Bank of Japan bought 16 trillion yen worth of government bonds in a month to keep interest rates down.
At the press conference, Governor Kuroda said, "I have no intention of raising interest rates at all," and this time it may have been a courageous step in the market.
However, there are voices within the Bank of Japan that some confusion is inevitable if the policy is to be revised, not just for the YCC.
The environment is very different between Australia and Japan, but given the various uncertainties such as the situation in Ukraine and the new corona, the difficulty of making decisions and preparing for sudden changes are likely to be lessons for Japan as well. I feel like.
Is it possible to draw an exit strategy without confusion toward the BOJ's goal of rising prices as wages rise?
I would like to pay attention to how to apply the lessons of Australia.
Scheduled to pay attention
On the 3rd, OPEC Plus meetings will be held in major oil-producing countries to discuss future production policies.
As crude oil prices soared, US President Byden visited Saudi Arabia in July to call for increased crude oil production, but it will be interesting to see what decisions the major oil-producing countries will make.
In addition, the employment statistics of the United States, which is of great interest to the market, will be released on the 5th, and the central bank of Australia, which was discussed this time, will hold a meeting to decide monetary policy on the 2nd.