A weird omission

The Financial Times has a story on the recent depreciation of the Japanese yen. Here’s the intro:

The yen dropped to a seven-year low on Monday as the Bank of Japan bucked the global trend for tighter monetary policy, stoking speculation that the central bank could intervene to prop up the currency for the first time since 1998.

The currency dropped more than 2 per cent against the dollar to reach ¥125, prompting traders to forecast further drops. It has fallen more than 7 per cent against the dollar so far this month, making this the worst month for the Japanese currency since 2016.

And how did that “propping up” in 1998 work out for Japan?

After reading this I figuratively smacked my lips in anticipation of what would come next. I thought, “I can’t wait until they describe the negative affects of yen depreciation, the reasons why the BOJ might feel the need to prop up their currency. This will make a great blog post.”

Alas, the explanation never came. Hence this crappy blog post.

The FT is a very high quality newspaper. High quality newspapers do not publish incomplete stories. When they say a government is considering doing X, they also explain why the government might feel a need to do X. Why might the BOJ be worried about yen depreciation? Inquiring minds wish to know.

Of course you and I both know that there is absolutely no reason at all for the BOJ to be worried about yen depreciation. But I wanted them to at least offer some sort of pathetic explanation, so that I could mock it. No such luck.

Instead, the article ends with a paragraph explaining why yen depreciation would actually be good for Japan:

Kuroda repeated on Friday last week his assertion that the weak yen was still “generally positive” for the Japanese economy, with the yen’s tumble boosting the shares of Japanese exporters.

Left unchecked, yen depreciation would boost Japanese exports and also boost Japanese inflation up a bit closer to their 2% target. Someone must do something to stop this from happening!



10 Responses to “A weird omission”

  1. Gravatar of XVO XVO
    28. March 2022 at 10:46

    Why are the Japanese and the Americans so bad at monetary policy?

    It doesn’t seem like an accident, there must be some political reason for this? Which special interest groups want deflation in Japan and inflation in America?

    Or is it really incompetence? I don’t think I can believe it.

  2. Gravatar of Philo Philo
    28. March 2022 at 11:29

    Isn’t 2% inflation too high for Japan? The trend for decades has been a good bit below that–I think, below 1%. The policy of a Sumnerian monetary authority, aiming to maintain the expectation of a smoothly rising trend of NGDP compatible with the prevailing trend, would probably result in an inflation rate much below 2%–perhaps *far* below, if real economic growth picked up. There is nothing magical about the 2% number; its adoption by the U.S. Fed was, so far as I know, quite arbitrary.

  3. Gravatar of ssumner ssumner
    28. March 2022 at 12:57

    XVO, You said:

    “Or is it really incompetence? I don’t think I can believe it.”

    Why is this so hard to believe? Aren’t lots of private sector pundits equally clueless? Why should we expect government employees to be smarter than people in the private sector?

    Philo, That’s their target, so they should hit it.

    And no, I don’t see why it would be too high. It would allow the BOJ to have a smaller balance sheet.

  4. Gravatar of Michael Sandifer Michael Sandifer
    28. March 2022 at 19:41

    I haven’t studied this closely, but my suspicion has long been that at least part of the reason Japan does stupid things like this is due to pressure, or feared pressure from the US. Treasury Secretary Baker was putting such pressure on Japan in 1987 as one possible precipitant of the stock market crash late that year.

  5. Gravatar of Michael Rulle Michael Rulle
    29. March 2022 at 06:36

    Monetary policy is hard ——the proof is that there are so many different opinions on the right framework and further, even within the same policy framework there are differences of opinion on the “facts”. I am amazed we do not have more crises.

  6. Gravatar of Todd Kreider Todd Kreider
    29. March 2022 at 06:57

    Philo: “The trend for decades has been a good bit below that–I think, below 1%.”

    According to the World Bank, Japan’s inflation by decade has been:

    1990s 1.2%
    2000s -0.3%
    2010s 0.5%

    The 30 year average is +0.5%

  7. Gravatar of Todd Kreider Todd Kreider
    29. March 2022 at 07:00

    About ten years ago an economist at the U of Chicago said that if Japan calculated inflation the same way as the U.S. it would be 1% lower so if he was correct then the 30 year average has been -0.5% and maybe as low as -1.0%.

  8. Gravatar of Arc Arc
    29. March 2022 at 11:42

    I just want to point out this line:

    “(…) Such a move would mark a shift for the BoJ, which has a long record of intervening to weaken the yen.”

    It does?

  9. Gravatar of ssumner ssumner
    29. March 2022 at 15:46

    Arc, I’d say off and on it has intervened to depreciate the yen, but the net effect of BOJ policy has not been to weaken the yen.

  10. Gravatar of dtoh dtoh
    1. April 2022 at 19:39

    It is sometimes useful to think of the current exchange rate as simply a function of the future expected exchange rate adjusted for the interest rate differential between the two currencies.

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