While the U.S. Federal Reserve has offered a timetable for scaling back its quantitative easing regime, the Bank of Japan may face calls for additional easing, some observers say.
Stock markets around the globe tumbled and U.S. Treasury yields surged after Fed Chairman Ben Bernanke announced Wednesday after the Fed’s two-day policy meeting that the U.S. central bank might begin reducing the pace of asset purchases this year and end its quantitative easing policy in mid-2014.
The Fed’s exit from quantitative easing could trigger the reversal of global money flows, fueling stock market drops and interest rate surges, while the BOJ holds the course with its own QE program, analysts said.
If the turmoil spreads, “the possibility cannot be ruled out that pressure on the BOJ to take additional easing steps will increase,” said Maiko Noguchi, senior economist at Daiwa Securities Co.
The BOJ kicked off a radical monetary easing campaign in April to double Japan’s monetary base with the goal of stoking 2 percent inflation in about two years.
Under its “quantitative and qualitative” easing policy, the central bank is aggressively buying up a wide range of Japanese government bonds as well as riskier assets. The balance of private financial institutions’ current account deposits at the BOJ hit a record ¥83.34 trillion Thursday as a result.
But ever since the policy began, Japanese interest rates have been going through wild swings. The benchmark long-term interest rate, set by the lastest issue of 10-year JGBs, briefly rose to 1 percent recently after hitting a record low of 0.315 percent.
An excessive rise in interest rates could jeopardize the economy by making mortgage and debt payments unaffordable — including the cost of maintaining Japan’s gigantic worst-in-the-G-8 debt.