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23 Apr 2014
ECB and BoJ moving in opposite directions - Nomura
FXStreet (Bali) - Richard Koo, chief economist at
Nomura Research Institute, made an interesting observation saying that monetary policy in Europe and Japan are moving in opposite directions.
Key Quotes
"In Europe, a steady decline in the inflation rate to 0.5% has sparked deflation fears. The ECB responded at its latest Governing Council meeting by discussing the possibility of quantitative easing and other forms of unconventional monetary policy, with ECB President Mario Draghi declaring at his subsequent press conference that the Bank would not hesitate to take such measures if necessary."
"This marks a major turnabout in as much as the ECB had previously been reluctant to consider such policies on both theoretical and technical grounds. It also suggests the European central bank is taking very seriously the euro’s recent strength and the sharp drop in inflation."
"In Japan, meanwhile, BOJ Governor Haruhiko Kuroda declared the BOJ had no intention of giving in to market participants’ demands for additional easing in response to the recent poor performance of Japanese equities. He also surprised many people by expressing the view that Japan’s deflationary gap was almost gone."
"If the aggregate surplus of supply over demand has in fact disappeared and the economy is close to full employment, further monetary accommodation would be not just unnecessary but downright dangerous. Kuroda’s comment, therefore signal a major turning point for the policy debate in Japan, which has been predicated for a long time on the assumption of a large deflationary gap."
Nomura Research Institute, made an interesting observation saying that monetary policy in Europe and Japan are moving in opposite directions.
Key Quotes
"In Europe, a steady decline in the inflation rate to 0.5% has sparked deflation fears. The ECB responded at its latest Governing Council meeting by discussing the possibility of quantitative easing and other forms of unconventional monetary policy, with ECB President Mario Draghi declaring at his subsequent press conference that the Bank would not hesitate to take such measures if necessary."
"This marks a major turnabout in as much as the ECB had previously been reluctant to consider such policies on both theoretical and technical grounds. It also suggests the European central bank is taking very seriously the euro’s recent strength and the sharp drop in inflation."
"In Japan, meanwhile, BOJ Governor Haruhiko Kuroda declared the BOJ had no intention of giving in to market participants’ demands for additional easing in response to the recent poor performance of Japanese equities. He also surprised many people by expressing the view that Japan’s deflationary gap was almost gone."
"If the aggregate surplus of supply over demand has in fact disappeared and the economy is close to full employment, further monetary accommodation would be not just unnecessary but downright dangerous. Kuroda’s comment, therefore signal a major turning point for the policy debate in Japan, which has been predicated for a long time on the assumption of a large deflationary gap."