BOJ’s policy calls are being made in Washington and Beijing

TOKYO – Though governor Kazuo Ueda announced the news last Friday, the Bank of Japan’s decision to leave interest rates unchanged was really made in Washington.

Two days earlier, US Federal Reserve chairman Jerome Powell disappointed many by suggesting the harshest US tightening cycle in 30 years isn’t over. That news, in many ways, left Ueda’s team at the BOJ with nowhere to go – and standing pat today.

Virtually everyone agrees the BOJ must begin normalizing interest rates as soon as possible. The 23 years of quantitative easing (QE) have warped credit markets and deadened the “animal spirits” needed to reinvigorate Japanese innovation and competitiveness.