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Review the minutes of recent meeting by Bank of Japan officials. Summarize at least one recent meeting that was associated with possible or actual intervention to affect the yen’s value
Based on the recent meeting minutes from Bank of Japan website, the overall economic of Japan is showing some positive signs of improvement due to the implementation of various policy measures both at home country and abroad. Firstly, a better overseas economic condition made the country export increase and this trend is predicted to continue in the upcoming time as long as the economic environment of overseas markets keep improving . Additionally, private consumption, in particular to durable goods consumption was getting higher since the implementation of some government policies in order to stimulate the consumption and production under a severe employment and income situation (BOJ, 2010). Also, the unemployment rate was high and a declining trend in income household will likely to continue given the lagged effects from developments in corporate profits and production (BOJ, 2010).
The improvement in the economy is expected to remain until the middle of this year, 2010. Also, it’s expected that the increase in exports will improve the corporate sector and consequently spill over to the household sector and result in higher growth rate of the economy (BOJ, 2010).
Besides, most members in the meeting agreed that the objective of the future conduct of monetary policy should help the Japan’s economy to overcome deflation and return to sustainable price stability. Additionally, in conducting the monetary policy, the central bank of Japan should maintain a highly accommodative financial environment “by providing ample funds to meet market demand and maintaining the extremely low interest rates” (BOJ, 2010, p.14)
From the Bank of Japan website, it’s important to note that Japanese economy had experienced large fluctuations in the foreign exchange rate with the value of Japanese yen on the upward trend since the government introduced a floating system in 1973. These fluctuations had negative impact on the country economy and in an attempt to mitigate such negative impact, foreign exchange interventions have been conducted from time to time (BOJ, 2000).
On the website of Bank of Japan, foreign exchange intervention is simply defined as any foreign exchange transactions carried out by monetary authorities in an attempt to influence the exchange rate. In Japan, government grants the Minister of Finance legal right to conduct intervention as a means to achieve foreign exchange rate stability (BOJ, 2000). Moreover, the Bank of Japan will act as an agent of Minister of Finance in carrying out the intervention operations in accordance with the guideline of Minister of Finance (BOJ, 2000).
There are different types of interventions including “coordinated intervention”, “entrustment intervention” and “reverse-entrustment intervention”. Firstly, “coordinated intervention” refers to “two or more monetary authorities implement intervention jointly by using their own funds at the same time, or in succession” (BOJ, 2000, p.1). Secondly, “entrustment intervention” means the conduct of foreign exchange transactions in overseas market with funds of Japanese authorities (BOJ, 2000). And in contrast, “reserve-entrustment intervention” occurs when the authorities intervene in Tokyo market (BOJ, 2000).
In a meeting minutes in October, 2008, due to the global financial crisis spreading from the US after the failure of Lehman Brothers which led to the failure of other US financial institutions, the central bank of Japan had actually intervened in the market by implementing various monetary policy actions in order to support the economy including lowering the policy interest rates, ensuring the stability in the financial market as well as facilitating corporate financing (BOJ, 2008). To reduce the interest rates, the central bank had lowered the bank’s target for uncollateralized over night call rate by 20 basis points and also try to keep it at 0.3 percent. The uncollateralized over night call rate is referred as “the lending rate charged for short-term loans (usually just on an overnight basis) between banks in the banking system”, but it has very strong impact since it will affect on the rate charged for commercial loans by banks (BOJ, 2008, p.5). Besides reducing the over night call rate, there is also a reduction in the basic loan rate to 0.5 percent (BOJ, 2008). Furthermore, in an attempt to stabilize the money market, the bank allowed to pay the interests on excess reserve balances to help supply enough liquidity until the fiscal year-end (BOJ, 2008). In general, the global financial crisis in 2008 had caused sluggishness in Japan’s economic activity and it will probably take the country few years to get recovered and also the main objective of central bank of Japan is to do its best to help the economy return to its sustainable price stability through maintaining accommodative financial conditions (BOJ, 2008).