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Bank of Japan's Meeting in March 2006: An End to the Quantitative Easing Policy?  
 
Product Ref: 06/301C Company: Bank of Japan

Product Type: Case Industry: Banks & Diversified Financials

Related Product(s): Teaching Note
Authors: Mitsuru Misawa   
The BOJ policy board convened for a two-day meeting starting March 8th 2006. It was expected the BOJs Policy Board would decided to end its five-year super-loose monetary stance. Mainly because a set of predetermined conditions for terminating the quantitative easing had been met íV including steady year-on-year growth in the core CPI (consumer price index). Under the quantitative easing approach, the BOJ had flooded the market with far greater amounts of liquidity than needed. A decision to end the policy meant Japan was returning to a normal monetary stance targeting interest rates after five years of pursuing an unorthodox policy designed to combat persistent deflation. BOJíŽs decision was not easy. Although the Law established the BOJ's independence, there was considerable opposition from the government, including Prime Minister Koizumi, in particular to an early dropping of the quantitative monetary easing. Because no major central bank had ever had such a loose-money policy, no one knew for sure how to end it smoothly.
Functional Area : Economics & Business Policy

Issues: BOJ, BOJ Law, Central Bank, Consumer Prices, Government-BOJ Coordination, Inflation Target Approach, Japan, Japanese Economy, Market Reaction, Money Policy, New Monetary Policy, Quantitative Easing Policy, Law, Banking law, Consumer Price Index, CPI, Inflation, Deflation, Interest Rates
Length: Text: 9 pages
Exhibits: 12 pages
Country: Japan

Pub. Year: 2006 Level of Difficulty: 3
         
This product type is available in the following language(s):      English
         
Related Information: This case provides a fascinating description on the role, responsibility and objectives of a central bank like the BOJ. The case shows clearly central bankers should be held accountable for their actions, but should also be protected from arbitrary dismissal and over-turning of their decisions. The institutional relationship between monetary and fiscal operations should be clearly defined. This case show how important it is for the decisions of the central bank to be communicated to the public in an open manner. The central bank should explain the framework, instruments and targets, if any, which are used to achieve its objectives.
 
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