The Bank of Japan and the Federal Reserve are in a “vicious spiral” of monetary easing as both central banks seek to bolster economic growth, according to Daiwa Institute of Research in Tokyo.
Japan’s central bank pledged today to keep its benchmark interest rate at “virtually zero” until the end of deflation is in sight and to expand its balance sheet in an effort to shore up a slowing economic recovery. Fed Chairman Ben S. Bernanke said yesterday the U.S. central bank’s first round of large-scale asset purchases improved the economy and that further buying of debt is likely to help more.
“The Bank of Japan has fallen into a vicious spiral with the Fed in easing policy,” said Maiko Noguchi, an economist at Daiwa. “The BOJ’s next moves will depend on the Fed. The bank will have no choice but steadily take easing measures, even though they may be criticized as being too passive.”
The Bank of Japan will create a 5 trillion yen ($59.7 billion) fund to buy government bonds and other assets, it said in a statement released today in Tokyo. It also lowered the benchmark interest rate to a range of zero percent to 0.1 percent, from the previous 0.1 percent target.
New York Fed President William Dudley said last week the outlook for U.S. job growth and inflation is “unacceptable” and that the Fed will probably need to take action. The Federal Open Market Committee next meets to decide policy Nov. 2-3.
Japan’s benchmark bonds gained after today’s BOJ decision, pushing 10-year yields down four basis points to 0.895 percent, matching a decade-year low marked on Aug. 25.
The difference in yield between 10-year yields in Japan and the U.S. reached 1.55 percentage points today, holding near the narrowest level since April 2009.
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