The Bank of Japan kept interest rates on hold in the face of market turmoil that has sent both stocks and the dollar sliding. Being a central bank BOJ, is an entity responsible for the monetary policy of Japan. Its primary responsibility is to maintain the stability of the national currency and money supply, but more active duties include controlling subsidized-loan interest rates and acting as a “bailout” lender of last resort to the banking sector during times of financial crisis (private banks often being integral to the national financial system). It also has supervisory powers to ensure that banks and other financial institutions do not behave recklessly or fraudulently.
In most countries the central bank is state-owned and has a minimal degree of autonomy, which allows for the possibility of government intervening in monetary policy. “With markets so volatile and uncertainty so high, Bank of Japan Governor Toshihiko Fukui had little choice but to make cautious remarks about the outlook for Japan’s economy. There’s no need for him to make hawkish comments now when markets are very unstable,” said Yasuhiro Onakado, chief economist at Daiwa SB Investments.
“We cannot rule out a case where adjustments in the U.S. housing sector and global markets become worse than expected. If that happens, U.S. private consumption and business fixed investment may fall below expectations through negative wealth effects, the credit tightening and deterioration in business and consumer sentiment, and this may lead to further deceleration in growth of the U.S. economy,” he said.
