A Bloomberg survey showed last month that a majority of forecasters doesn’t expect the Bank of Japan to tighten policy even over the longer term. The cost of that widespread assumption: Japan’s central bank has effectively lost the tool of forward guidance. Its tweaks in recent years, including the adoption of a commitment to overshoot its 2% inflation target, haven’t produced notable market reactions.
Bright Lines
The BOJ’s counterparts are determined to prevent any perception that they become little more than financing agencies for fiscal authorities.
Powell drew a bright line on money-financed fiscal policy last week, even as the Fed scoops up $80 billion a month of Treasuries.
“That’s not something we do -- we have different jobs,” Powell said in response to a question at his Nov. 5 press conference. “The job of taxation and spending goes to people who have stood for election and been elected and that’s the way it should be.”
The Fed chair also underscored that the unprecedented emergency lending programs unveiled this year, which provided a backstop for everything from municipalities to mid-size businesses, is a temporary arrangement.
“That shouldn’t be a permanent thing where we’re just another federal financing agency,” Powell said.
Bundesbank President Jens Weidmann put it another way in a speech on Nov. 5. “In the current environment, monetary and fiscal policy are working in harmony,” he said. “Their respective goals are aligned. But we should not pretend that such harmony will be a permanent condition.”
-With assistance from Michelle Jamrisko and Enda Curran.
This article was provided by Bloomberg News.