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ORLANDO, Florida, Nov 1 - 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'.
With many economists arguing that world is now gone - as even Japan is now battling to rein in above-target inflation - the notion that central banks will automatically ease policy to backstop financial markets looks a bit fanciful. A National Bureau of Economic Research working paper in March 2020 noted:"The statistical fact is that, since the mid-1990s, the Fed has tended to lower rates by an average of about 1.2 percentage points in the year after a 10% stock market decline."
This was an explicit, open-ended policy to hold the currency at a set level and flood the Swiss economy and markets with oceans of liquidity, but essentially still a central bank put.
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