Will they or won’t they?

The “they” in the title of this post are, of course, the members of the Bank of Japan’s Policy Board, and the 120.54 million yen question is whether its members will vote to raise interest rates on Thursday.

Call me naive, but I’m used to the Fed’s way of doing business, namely advertising the direction of its next move long in advance so various actors in the economy (domestic and global) have plenty of time to factor the central bank’s anticipated policy direction into their decision making.

Japan, meanwhile, seems to have concluded that predictability is overrated. First, senior members of the LDP openly questioned the wisdom of a rate hike last weekend, as I discussed in this post, raising questions about even the circumscribed independence of Japan’s monetary authorities. Then, as if to throw the markets a curve, Omi Koji, Japan’s finance minister, stated matter-of-factly yesterday that he sees no problem with the BOJ raising interest rates, and, to muddy the waters even further, Chief Cabinet Secretary Shiozaki declined to comment on the prospect of a rate hike. (See this article in the Yomiuri Shimbun).

And then, to throw tomorrow’s outcome completely into question, Reuters is now reporting that the BOJ is “unlike to raise rates.”

In the midst of the speculation regarding the short-term direction of Japan’s monetary policy and with it Japan’s economic recovery, it’s worthwhile to check out this interview in the English edition of the Asahi Shimbun with Koizumi economy czar and current Keio University professor Takenaka Heizo, in which Takenaka calls for, among other things, inflation targeting by the BOJ. But he also once again implicitly criticizes the Abe Cabinet for its reluctance thus far to push forward with what he calls “proactive reform.”

This is indeed curious. Economic reform was pretty much the raison d’etre of the Koizumi Cabinet, but it seems that reforming the Japanese economy so that it remains dynamic and prosperous is too pedestrian for Prime Minister Abe — he apparently likes a challenge, like completely remaking Japan’s institutions as they have existed since the end of World War II.

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