A Week in Central Banking

The Bank of Japan, the Federal Reserve, and the Bank of England all held meetings this week.

Economic News
2021年9月24日

This week the financial markets were mostly preoccupied with a series of meetings of important central banks around the world.

First was the Bank of Japan, which held its meeting on Wednesday. Unsurprisingly, the regulator chose to leave the interest rate unchanged at -0.1%.

The Bank of Japan is likely going to be one of the last ones to switch to a more hawkish approach, longer after the central banks of other countries have abandoned dovish policies. There are several reasons for this.

First off, Japan was already in a recession before the coronavirus pandemic began, and its economy has relied on support from the BoJ for years. Secondly, Japan’s vaccination rate remains lower compared to other developed countries and the Summer Olympics contributed to a spike in Covid-19 infections. Thus, Japan is still wrestling with outbreaks and we cannot speak of a recovery from the pandemic yet.

In addition, Prime Minister Yoshihide Suga resigned in light of his government’s failure to contain the pandemic, so Japan is getting ready for another change in leadership, which is a destabilizing factor for the economy.

The second important meeting of the week was that of the Federal Reserve, also on Wednesday. The Fed left the interest rate unchanged at 0.25%, as expected.

However, despite a recent worsening in the economic climate in the US due to the resurgence of the coronavirus, the Fed’s forward guidance was rather hawkish. A vote revealed that an increasing number of Fed members are now in favor of both asset purchases tapering and an interest rate increase as early as next year. Previously, only tapering was considered a possibility.

Last was the Bank of England, which met on Thursday. The BoE was one of the regulators that earlier in 2021 seemed to be frontrunners for monetary policy tightening, on account of how well the United Kingdom handled the pandemic this year.

Nevertheless, the spread of the delta variant has proven that even such a highly vaccinated population still needs to rely on social distancing and self-isolation for confirmed cases, even when the disease is not severe, which in turn meant thousands of employees were unable to show up to work because they had to quarantine themselves.

Thus, recent fundamentals from the United Kingdom have been increasingly disappointing, which pushed the Bank of England to hold off any plans of monetary policy tightening. The meeting resulted in no changes to interest rates or asset purchases.

Anna Sneider

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