The Bank of Japan's big mistake

From a monetary policy point of view, the BoJ's decision to keep interest rates on hold is hard to fault, says economist Stephen Roach. But it may have damaged the market's investment appeal nonetheless.

In a stunning blow to central bank independence, the Bank of Japan seriously bumbled its January 18 policy decision. After setting up the markets for the second installment of a "normalization-focused" monetary tightening, the BOJ buckled under political pressure and passed -- electing, instead, to keep its policy rate unchanged at 0.25%. While this may end up being nothing more than a painful detour on the road to normalization, the incident speaks volumes about the Old Guard political dominance of Japan's deeply entrenched LDP ruling party. It is a major credibility blow, with potentially lasting damage to the New-Economy image of a revitalized post-deflation Japanese economy.

Why the Bank of Japan's error was political, not economic

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