The world according to BoJ

Bank of Japan Governor Masaaki Shirakawa made two very interesting comments on economic policy. The first one is on the objective of Japanese monetary policy.

Bank of Japan Governor Masaaki Shirakawa said on Friday the central bank's view on the price outlook was in sync with that of the government.

But Shirakawa said monetary policy should not be guided just by looking at price moves.

"Monetary policy should not be implemented just by looking at prices. We need to look at the overall balance of the economy," he told an upper house budget committee meeting.

Be careful that he maintains, "Monetary policy should not be implemented just by looking at prices. We need to look at the overall balance of the economy."

Is it strange or incorrect in light of the BoJ's objective? Of course, not.

The Act (note: the Bank of Japan Act) also stipulates the Bank's principle of currency and monetary control as follows: "currency and monetary control by the Bank of Japan shall be aimed at achieving price stability, thereby contributing to the sound development of the national economy."

We acknowledge that one of the BoJ's objectives is "the sound development of the national economy." It should be no problem, then, that the Governor underscores "the overall balance of the economy" to steer monetary policy.

But the BoJ moved forward its monetary policy meeting to November 4-5, which was originally scheduled for November 15-16, because it can initiate an additional program right after the Fed's FOMC meeting in November 2-3 if the yen surges enough to hamper the economy. Shirakawa denied that overseas events are factored in for the date change, but it's highly likely that the BoJ has weighed in favor of currency policy given that the policy interest rate is near zero.

So, Shirakawa's true intention looks like that Japanese monetary policy is aimed not for rate change anymore but to guide the yen as low as possible, which is in tandem with the government's initiative. That's why he emphasized "the overall balance of the economy" to conduct monetary policy. It's not clear whether this is a departure from the traditional monetary policy, but we should be advised that the BoJ's eye is now kept on currency markets, not bond markets anymore.

Regarding to that, the English article's title "BOJ Shirakawa: BOJ's price views in syc with govt" is a little bit off the point. The title of the original Japanese version "No central banks implement monetary policy just by looking at prices in the short term" seems more in tune with his inner message.

The other comment is on international currency system. Shirakawa said at an upper house budget committee meeting,

Both of developed and emerging nations must realize that the effect of monetary and currency policy returns to their own after spreading to other countries.

I haven't found an English version, which implies that nobody in the world has paid any attention to this comment. It looks like a very, very, very polite criticism by a too-well-behaved central banker of US and Chinese policy.