With respect to monetary policies, those who are concerned with nearterm
inflation as well as those concerned about a further build-up of mediumterm
imbalances might welcome further tightening. Inflation pressures globally
seem to be increasing, while evidence of various imbalances continues to
mount almost everywhere. For those concerned about inflation pressures,
economies with external deficits, particularly the larger ones, should in principle
bear a particular responsibility for contributing to the moderation of global demand
growth. Those who are concerned about imbalances and resource misallocations
would note that China seems to have a particularly large gap between actual
interest rates and the “normal” rate determined by the economy’s potential growth
rate.
Japan has been facing persistent downward pressure on prices, but these
pressures increasingly reflect the positive supply side shocks seen elsewhere
in the world. This fact, together with secular improvements in the levels of
corporate debt and non-performing loans, implies that the potential for a
dangerous deflationary spiral has now been much reduced. The fact that the
economy seems to be growing robustly, and that capital outflows from Japan
might be having unwelcome effects elsewhere in the world, provides further
arguments for supporting the suggestion that the Bank of Japan should
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
"While, in general, large economies with floating exchange rates should
continue to let them float freely, there is clearly something anomalous in the
ongoing decline in the external value of the yen. Tighter monetary policies
would help to redress this situation, but the underlying problem seems to be a
too firm conviction on the part of investors that the yen will not be allowed to
strengthen in any significant way. As a counterweight, investors might be better
encouraged to consider the autumn of 1998, when the yen rose by more than
10% against the US dollar in the space of two days, inflicting sizeable losses
on those involved in the carry trade business.
There should also be a greater willingness to let the renminbi rise, even
though one recognises the formidable internal challenges this will pose to the
Chinese authorities. Such a move would also allow other Asian currencies to
move up further against the US dollar, again contributing to a reduction in
global trade imbalances. While some in China seem to believe that the source
of Japan’s recent problems lay in allowing the yen to rise in the late 1980s, this is
a misreading of history. The seeds of the Japanese bust were actually sown in the
preceding, rampant monetary expansion designed to keep the yen down.
Moreover, given the recent rates of credit expansion, asset price increases and
massive investments in heavy industry, the Chinese economy also seems to
be demonstrating very similar, disquieting symptoms."
http://www.bis.org/publ/arpdf/ar2007e8.pdf
http://www.bis.org/publ/arpdf/ar2007e.htm
quote of the day:
.
It's like deja-vu all over again
