Wednesday, January 13, 2010

The problem with the BoJ

The new Japanese finance minister, Naoto Kan, has called on the Bank of Japan to support the government's efforts to weaken the yen. His remarks have been criticized for weakening the independence of the BoJ. 

It completely eludes me how the shibboleth of central bank independence can be viewed as more important than ending deflation and growing the real economy. The BoJ's record as an independent central bank has been one of utter failure, with flat nominal GDP growth for two decades, compensated for by massive fiscal deficits. 

An erosion of the BoJ's independence would be a very good thing.

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