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SaltWire's Atlantic regional weather forecast for November 1, 2023 | SaltWireORLANDO, Florida - In scrapping its hard 10-year bond yield ceiling of 1%, the Bank of Japan has taken a huge step towards dismantling a widespread assumption at the heart of G10 monetary policy for decades - the idea of a central bank 'put'.
But for most of the time since the late 1980s, when Greenspan became Fed chair, central banks were tooled mostly to fighting against the risk of deflation rather than inflation - and the likes of the Bank of Japan and Swiss National Bank were in the thick of that battle. "It's fair to say all of these policies that were aimed at generating asset market strength by pumping liquidity into the market have basically been withdrawn."
In addition, interest rate changes were asymmetric — Fed rate hikes following stock market recoveries were usually muted compared with the initial cuts.As near-zero interest rate policies emerged after 2008, transmission of easier money - and the notion of a central bank put - spread to government bond buying or exchange rates, as in the case of Switzerland.
Since the post-COVID-19 surge in inflation to 40-year highs in many developed economies, policymakers have moved even further away from those extremes, tightening policy via unprecedented rate hikes, shrinking balances sheets, or both. The cap was set only three months ago, and the speed with which it was abandoned suggests the BOJ under Governor Kazuo Ueda means business. Given that the BOJ now sees inflation well above its 2% target next year, could the BOJ go up through the gears and perhaps even raise rates in the coming months?
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