The Bank of Japan (BOJ) policy board convened for a two-day meeting from 8 March 2006. It was expected the BoJ Policy Board would decide to end the five-year, super-easy monetary policy, mainly because a number of specified conditions for the end of quantitative easing had been met – including steadily year on year growth in the core CPI (consumer price index). Under the quantitative easing approach the BoJ had flooded the market with far greater amounts of liquidity as needed. … Read more »

The Bank of Japan (BOJ) policy board convened for a two-day meeting from 8 March 2006. It was expected the BoJ Policy Board would decide to end the five-year, super-easy monetary policy, mainly because a number of specified conditions for the end of quantitative easing had been met – including steadily year on year growth in the core CPI (consumer price index). Under the quantitative easing approach the BoJ had flooded the market with far greater amounts of liquidity as needed. A decision at the end of the policy meant Japan was to a normal monetary policy targeting interest rates after five years pursuing an unorthodox policy to combat deflation back persistently. The BoJ’s decision was not easy. Although the law establishes the BOJ’s independence there was considerable resistance from the government, including Prime Minister Koizumi especially at an early dropping of quantitative easing monetary policy. Since no major central bank has ever had such a loose monetary policy, no one knew exactly how to finish it smoothly.
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Mitsuru Misawa
Source: University of Hong Kong
21 pages.
Publication Date: Nov 10,, 2006. Prod #: HKU601-PDF-ENG
Bank of Japan meeting in March 2006: an end to the policy of quantitative easing? HBR case solution

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