Monday, February 27, 2012

There Is No Technocracy, Bank of Japan Edition

. Monday, February 27, 2012

My view (and that of many other market monetarists) is that the Bank of Japan acted as if it didn’t want inflation, tightening policy in 2000 and 2006, despite no inflation. In my view the press and many economists were somewhat naive in accepting the BOJ’s claim that there was little they could do to end deflation. After all, the yen is a floating fiat currency. ... 
I used to wonder why the BOJ tightened so much in late 2006, raising interest rates and reducing the monetary base by 20%. Another Financial Times story gives us the answer: 
In recent years, the bank has tended to shrug off overt political pressure. A 1998 revision of the BoJ law strengthened its operational autonomy by removing the government’s authority to dismiss the governor and deputy chiefs.  
Only under prime ministers with very solid popular support, such as Junichiro Koizumi between 2001 and 2006, has the BoJ appeared to bend to the government’s will. It has put up a particularly strong defence of its independence under Mr Shirakawa, promoted from deputy governor in 2008.
This is a common theme on this blog. Hopefully others are starting to internalize it. For some reason this particular post and discussion reminded me of this old article (pdf) of Oatley's on the politics of central banks. For my money the best articles on the politics of "technocratic" institutions have yet to be written. There's a good bit of fruit still to be harvested from there.

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There Is No Technocracy, Bank of Japan Edition
 
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