As the world’s most powerful central banks meet this week, one thing is apparent: They’re in survival mode. Little else matters for economic policy beyond weathering the coronavirus pandemic. The risk is that policy makers commit to a range of measures without an exit strategy.
This is nowhere more apparent than Japan. On Monday, the central bank introduced a number of crisis-busting policies: abandoning limits on purchases of government bonds, doubling the target for buying corporate debt and commercial paper, and easing the commitment to 2 percent inflation. The latter puts to rest the career-defining goal of Bank of Japan Gov. Haruhiko Kuroda, whose massive expansion of quantitative easing since 2013 had been framed around that objective. Steep cuts in forecasts for growth and consumer prices now make 2 percent seem unattainable before the end of his second five-year term in 2023.
A global pioneer of zero interest rates and quantitative easing, the BOJ seems focused on simply maintaining basic functions of the economy and the financial system. The Federal Reserve and European Central Bank, whose rate-setters meet this week, are in a similar position. For each, it will be years before they can consider unwinding the plethora of stimulative programs being introduced, let alone worry about inflation and rate hikes.