Wednesday, November 02, 2005


Japan To Abandon 'Massive Liquidity Policy'

Forex News has an update on the changing nature of government and business in Japan. "The USD/JPY is at the gates of 117, with all other major Yen pairs (notably EUR/JPY and GBP/JPY) telling a similar story. The Nikkei, too, is approaching the unexpected level of 14,000, a full 1000 points higher than analyst consensus, which has pegged the index to close the year at 13,000."

"It seems that senior policy-makers in Japan are sending mixed messages related to monetary policy. Within the newly appointed cabinet, it appears that Economy Minister Yosano is taking a more hands-off attitude to BoJ policy, while Finance Minister Tanigaki prefers a closer relationship between the government and the bank. While such a disagreement would hardly be newsworthy in other countries, this rift highlights a major structural concern within Japan."

"For those advocating a moving-away from the 'Japanese model' of government business 'cooperation,' this ministerial tussle is seen as a healthy shift towards unwinding the monolithic government/business marriage and a step towards greater central bank independence. Others fear the new Economy Minister's hands-off approach to the BoJ is potentially reckless as the economy attempts to break from its 7-year battle with deflation. More cautious statesmen are worried about abandoning the 'massive liquidity policy' prematurely."

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