Japan and Australia’s monetary policies

Escrito el 5 octubre 2010 por GONZALO PABLO GARLAND en Política Monetaria

Today the central bank of Japan announced a further reduction of its key interest rate from 0.1% to a range between 0 and 0.1%. It also announced that it would continue to apply an expansionary monetary policy with some elements of quantitative easing, as we have been seeing in the United States. Furthermore, the Bank of Japan indicates that this policy will most likely continue over the next months given the weakness of the economic recovery and the added troubles due to the recent appreciation of the yen, something that has created significant doubts on the possibility of exports helping in the recovery. In fact, in recent weeks what we have been witnessing  is that more countries are trying to influence their exchange rates so as to create a more favourable environment for export growth. But the problem is that not everybody can do this as the same time, so we will have to see how these currency wars unfold. 


This policy move also shows how the recovery in most of the industrialized world is still weak and that we are most likely facing a fairly long period of very expansionary monetary policy. As we know, we cannot say the same about fiscal policy, despite the academic debates and some transatlantic differences.

When reading the news about the decrease in rates in Japan I could not help thinking about the different path taken in monetary policy in Australia, another industrialized country that has benefited from the boom in natural resources and from its relative proximity to some of the fastest recovering countries in the world in Asia. Since October of 2009 the Reserve Bank of Australia has raised interest rates 6 times. It is true that other emerging countries have also increased their interest rates in recent months, such as Brazil or India, among others, but this could be explained because of a certain «decoupling» in the recovery between the industrialized and the emerging countries, something that we can’t say in the case of Australia.


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