The following is from Yoichi Takahashi's "How to Solve Japan" in the June 12 evening edition of the Hokkoku Shimbun, the European Central Bank, which has begun cutting interest rates.
I have often mentioned that Yoichi Takahashi and Hideo Tamura are real economic experts.
This paper also proves that Yoichi Takahashi is Japan's foremost economic expert.
It is a must-read not only for Japanese citizens but for people around the world.
Emphasis on securing employment, similar to the Fed
Contrast that with the BOJ's interest rate hike direction.
The European Central Bank (ECB) decided to start cutting interest rates on April 6.
The timing of the U.S. Federal Reserve's (FRB) interest rate cut is also attracting attention, and the difference from the BOJ's policy direction is noticeable.
The ECB's inflation target is 2%, as measured by the EU benchmark consumer price index (y/y).
In July 2022, when the ECB began tightening monetary policy from O.25% to O.75%, inflation was 8.9%.
The policy rate was then raised in small increments to 4.75% in September 2023.
Conversely, inflation rose to 10.6% in October 2022 but quickly peaked out, falling to 2.6% in May 2024.
This move is truly a "behind-the-curve" monetary tightening with a delay.
However, monetary tightening should have started in early 2010, when inflation soared to around 6%, instead of leaving it until it reached double digits.
The Fed's inflation target is 2%, measured by the core personal consumption expenditure price index (y/y).
In March 2022, when the Fed began tightening monetary policy from O.25% to O.5%, inflation was 5.4%.
The policy rate was then raised in small increments to 5.5% in July 2023.
Inflation was 5.5% in September 2022 but then began to decline and was 2.8% in April 2024.
The Fed's policy response is also typical of behind-the-curve, and the timing is not a problem.
Does the ECB expect inflation to rise or fall in the future?
If it does go up, there is little room for a decline in the unemployment rate.
The unemployment rate in April this year was at its lowest level on record.
On the other hand, if it were to fall, there is a possibility that the unemployment rate would rise.
There are two types of central banks.
One type prioritizes preserving employment, while the other prioritizes the management of financial institutions.
The former are cautious about raising interest rates, while the latter are eager to do so.
It has become clear that the ECB is the former.
The Fed has also announced its intention to cut interest rates, which is the former.
The Bank of Japan, on the other hand, is a typical example of the latter.
Since the inflation rate is not in an environment where it will deviate significantly from its 2% target for the time being, interest rates should not be raised immediately.
However, due to the "weak yen is the villain" theory, the Bank of Japan's eagerness to raise interest rates remains.
Professor Paul Krugman, who won the Nobel Prize in Economics, is skeptical, saying, "The weak yen is advantageous to Japan and is an opportunity, so why are people making such a fuss?"
It is a satire of the ridiculous response of the government and the media, but the domestic media cannot comment on it correctly.
Recently, there has been a new trap.
When I called the unrealized gains on foreign exchange holdings due to the weak yen "foreign exchange treasures," some people suggested selling the unrealized gains on exchange-traded funds (ETFs) held by the Bank of Japan, calling them "Bank of Japan treasures."
However, caution is required as this is a monetary tightening and will increase interest rates.
2024/6/12 in Kanazawa
