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We have an experiment under way as the Bank of Japan holds its cool

Yesterday’s fiscal statement analysis replaced my usual Wednesday news and music blog post, so that appears today. I have hardly any time today anyway as the commitments associated with that statement are queuing up. So, today I want to reflect on the sanity in Japan and the ECB before some Duke. So we now have an experiment underway again. Most central banks are buckling under the pressure the financial markets are putting on them to raise interest rates. But the Bank of Japan, and to a lesser extent the ECB are not. We will see how that plays out. I think the Bank of Japan has its finger on the pulse and the other central banks are going down the wrong path.

The Bank of Japan holds its cool and demonstrates something important to the World – again

With the US Federal Reserve losing its cool along with the Bank of England – thinking they can solve rising inflation arising from boats not getting goods to where they are in demand and workers not being able to work because they are sick by increasing interest rates, it is good to see that the Bank of Japan is resisting the same pressures from financial markets.

The markets are pressuring central banks to life interest rates because that will help them profit from bets they have made on that happening.

On Monday (March 29, 2022), the Bank of Japan demonstrated it was not backing off defending its yield cap policy.

It entered the bond markets and offered to buy unlimited amounts of 10-year Japanese government bonds.

Japan is also facing the rising cost of imports as a result of the pandemic and the extra supply problems arising from the Ukraine War.

The Bank of Japan released this announcement – Addition to the Auction Schedule and Increase in the Amounts of Outright Purchases of Japanese Government Bonds (March 30, 2022) – where they outlined their plan to continue their bond buying program and:

… increase the amounts of purchases …

Go figure you Monetarists out there demand interest rate rises.

The Bank has told the markets it will be buying unlimited amounts of bonds over this week to maintain control over the 10-year JGB yield.

They intended to stop the yield rising above 0.25 per cent (its target is 0 per cent).

The ‘markets’ as usual are claiming the Bank will lose its nerve.

They are also buying up longer term bonds to stop the markets skewing the longer maturity yields.

The Bank is maintaining short-term rates at -0.1 per cent and the 10-year bond yield at 0 per cent.

The 10-year bond yield this morning (Thursday) four days in to the increased purchases was at 0.22 per cent and falling.

The Governor of the Bank Kuroda told the press last week that the small depreciation in the yen that is occuring at present was “generally positive” for the Japanese exporters.

So we now have an experiment under way again.

Most central banks are buckling while the Bank of Japan, and to a lesser extent the ECB are not.

All nations covered by those central banks are facing the same supply-side cost pressures and the fallout from the Ukraine War.

Let’s see how the different policy approaches play out.

For the record, I think the Bank of Japan is once again demonstrating a superior capacity to conduct macroeconomic policy.

It is supporting a fiscal policy stance that cares about keep unemployment low and maintaining first-class public services.

Levy Summer School – June 2022

While the details are still being worked out, I can confirm that I will be teaching at the Levy Summer School in the US in June this year (between June 13-18).

This is the first international trip I have been willing to make since Covid. But the Levy work is important and I always will try to support the group there.

As more details emerge, I will pass them on.

It will be good to meet up with people again (with our masks on) but I don’t think I will be doing any partying!

Music – The Duke with John Coltrane

This is what I have been listening to while working this morning.

When I was young I heard this music on the radio and my parents had some records that I used to listen to when I played truant from school and sought the peace of what in those days was called the radiogram – a sort of cheap hi fi system that working class folk had to play records and listen to the radio.

And, when I was in a position to start buying records, this was one of the earliest purchases.

The song is – In a Sentimental Mood – and this version of the classic is from the 1963 album by – Duke Ellington.

The album – John ColtraneDuke Ellington & John Coltrane – was released by Impulse Records.

The Duke wrote the music in 1935 and lyrics were added later.

John Coltrane’s tenor on this album is one of the best expositions there is.

The other players on this song were:

1. Aaron Bell – Double Bass. He was in the Duke Ellington Orchestra during the period this album was recorded but left soon after to play with Dizzy Gillespie. He later received a PhD in Education at Columbia University.

2. Elvin Jones – Drums – who was a major contributor to the modal jazz and post-bop jazz era who was playing with John Coltrane’s band during the period this album was recorded.

The question I always used to ask myself when I was young was how can four people make such sublime sounds together.

The way this song shifts between the minor key to the major key for the middle section (interlude) is the stuff of magic!

That is enough for today!

(c) Copyright 2022 William Mitchell. All Rights Reserved.

This Post Has 7 Comments

  1. In stark contrast, the ECB anounce that it will be tapering off its bond buying programs. Sure enough yields of Spanish treasuries have already escalated to 1.6% for the 10 year bond.

  2. Hiking up interest rates will add a crisis to the spree of crisis we already have: refugee crisis, pandemic crisis, climate crisis and now, stagflation crisis and the Ukraine crisis.
    Anyway, in the last major crisis – the GFC – hedge-funds grew big, as assets swelled by two-fold, as people and businesses sold out the “rings” in despair.
    So, we might be reaching a point where the self-interest of a handful of people (way down the 1% figure), might overshadow the interest of the world.

  3. @Paulo, I’m not sure what you mean.
    I think you might mean “way up the 1% figure,” not down the percentage.
    As in the top 0.001%.

  4. @Newton,
    I saw a report many months ago about how the euro could not be the world’s reserve currency because the ECB (IIRC) had sucked cash out of bank accounts without warning having to do with Cypress.
    Now this seems like what the US has done in freezing Russian assets. A big difference is that even Switzerland did it at the same time, AFAIK, IIRC. This makes keeping one’s money in US Gov. bonds at the Fed. not a 100% safe asset. This undermines the dollar’s reserve currency status, right?

  5. That’s how I see it, Steve. I think that global neoliberalism, led by a U.S. which has lost its reason, is now in essentially the same place as the brave but overmatched Ukrainian army, about to be consumed in a cauldron of, at least in part, its own making. Scott Ritter iMHO has the clearest eyes about this. A new multi-polar world order, for better or worse, is being born before our eyes–one which, if we’re lucky, will more readily embrace, if only by necessity, the wisdom of MMT.

  6. @Steve A. and Newton F.

    I have an idea, if ones have time. As there are many predictions, models, scenarios etc. around, it raises a question, how then the global financial system will pan out going deeper into the 21st century?.

    If one has time, one could collect say 25 articles of those worthy of reading around. Then, we could read the gist of it or the final conclusions of each and make a note or notes.

    Then, we do this for the 25 articles selected.

    There, you might have a collection of proposed ideas, and bits and pieces, that are worth of having or holding in one mind (say 30 different ideas).

    Then, we could group them up in a way of similarity.

    These ideas might be grouped into, say 10-15 different themes.

    There, we could label these themes up nicely. At this point, we might have, say 8 themes.

    With these 8 themes, we could group them up again, and we might have, say 3-4 themes.

    With this newly created 3-4 themes, they will be most likely the predictions based on all the 25 articles in an aggregate form.

    These will inform you of what could happen in the new world order in terms of the finance and banking in a big picture.

    With is newly derive model, we could use the MMT lens to examine it, and then accept it, or propose our own revised model that might be better.

    It might be the same or slightly different or completely different.

    But it will be the model, you can work with going forward in a sound manner.

    Have fun! I would do it if I have time (I am doing one with the educational internationalization going forward, as virtual mobility, migration and exchange is becoming very relevant today).

    Doing one for the financial internationalization would be fun too.

    What would replace the current Global Western financial paradigm that we have been using since we can remember?

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