Enjoyed this read. with the BoJ can a case can be made that they are trying to operate all sides of policy trilemma, can either agree to prioritise monetary policy autonomy which would lead to more devaluation or focus on maintaining ER stability (hike along side the fed)?
Great question, Japan has both 1) free capital movements and (2) independent monetary policy. The struggle is as you said, one of the three (excluding capital flows) will have to go, which puts their economy at risk as raising rates poses significant fiscal challenges for Japan's debt burden and allowing yields on JGBs to float higher also present similar tail risks for their economy. The recent action of the BOJ shows they're willing to put their fate in the hands of the Fed, and hope for continued dovish rhetoric from the Jay.
Enjoyed this read. with the BoJ can a case can be made that they are trying to operate all sides of policy trilemma, can either agree to prioritise monetary policy autonomy which would lead to more devaluation or focus on maintaining ER stability (hike along side the fed)?
Great question, Japan has both 1) free capital movements and (2) independent monetary policy. The struggle is as you said, one of the three (excluding capital flows) will have to go, which puts their economy at risk as raising rates poses significant fiscal challenges for Japan's debt burden and allowing yields on JGBs to float higher also present similar tail risks for their economy. The recent action of the BOJ shows they're willing to put their fate in the hands of the Fed, and hope for continued dovish rhetoric from the Jay.
It’ll be interesting to see how the PBoC reacts to a weaker Yen while shedding of their $ reserves. Any thoughts on this?