Wednesday, December 07, 2005




Wake up people! Central Bank monetary policy is a contested political space. The FT.com reminds us why we should all just laugh at this prudence of Central Bank Independence--Inflation Targeting nonsense:

Mr Koizumi’s administration has recently warned the Bank of Japan of the dangers of tightening policy prematurely, saying there is no need to end ultra-loose monetary policy while the world’s second-biggest economy is still in deflation.

One senior politician from the ruling Liberal Democratic party even warned the BoJ that its independence – won only in 1998 – could be removed if it jeopardised government goals by derailing the recovery.

The BoJ has been making the case for gradually ending its current policy, by which it drenches the market with liquidity, saying that prices are stabilising and financial stability has returned. Until recent government pressure, analysts had expected the bank to start moving in the first half of next year, though many now say the BoJ might hold off because of political arm-twisting.

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