The Bank of Japan’s (BOJ’s) new phase of monetary easing has entered its sixth year. Now shrinking its balance sheet, the Federal Reserve Bank (the Fed) is expected to be able to avoid incurring losses in the process of monetary normalization, but the BOJ will likely incur losses of more than 10 trillion yen and will have difficulty steering a balanced course between normalizing monetary policy and ensuring financial soundness. The prolongation of the new phase of monetary easing is merely the postponement of losses. In the meantime, the lending margin of private banks will narrow and could impede the financial intermediary function. Ultimately, the BOJ faces a dilemma because whether it heads for an exit or maintains monetary easing, it will put a burden on the government, namely future taxpayers, and will run into the problem of central bank independence. Can the BOJ claw back the losses though future seigniorage, i.e. the revenue that a government receives by issuing money? The BOJ should surely spell out the side effects of the new phase of monetary easing and outlook for an exit to come to an arrangement with the government on the distribution of profits and future losses.
Japan Center for Economic Research(JCER) and Official Monetary and Financial Institutions Forum(OMFIF) cohosted an international conference dubbed "A New Phase of Monetary Policy" in November 2017.
New phase of monetary easing has entered its sixth year
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