Managing the Exit: Lessons from Japan's Reversal of Unconventional Monetary Policy

May 1, 2010

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Murtaza H Syed, and Hiromi Yamaoka. Managing the Exit: Lessons from Japan's Reversal of Unconventional Monetary Policy, (USA: International Monetary Fund, 2010) accessed December 25, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

In responding to the global crisis, central banks in several advanced economies ventured beyond traditional monetary policy. A variety of unorthodox measures, including purchases of public and private assets, have significantly enlarged their balance sheets. As recoveries take hold, focus will increasingly shift from countering the Great Recession to orchestrating an exit and returning to a more normal monetary framework. Five years ago, as its economy recovered from a severe financial crisis, Japan attempted just such an exit. This note revisits the Bank of Japan’s experience and draws potential lessons for managing an orderly exit today, with a focus on technical aspects, practicalities, and communication strategies. While the nature of the assets acquired during the present crisis could pose additional complications, parts of Japan’s arsenal—communication, flexibility, a sufficient set of policy tools and a strategy for using them, safeguards against potential losses, the revival of risk appetite through decisive restructuring of balance sheets, and refinements to the monetary framework upon exit—also could be important this time around.

Subject: Asset and liability management, Banking, Central bank policy rate, Financial institutions, Financial services, Financial statements, Liquidity, Monetary policy, Public financial management (PFM), Stocks, Unconventional monetary policies

Keywords: Balance sheet, BoJ official, Central bank, Central bank policy rate, Exit, Exit announcement, Financial statements, Global, JGB purchase, Liquidity, Monetary Policy, Policy reaction function, Quantitative Easing, Stocks, Unconventional monetary policies, WP

Publication Details

Pages:

14
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/114
Stock No:

WPIEA2010114
ISBN:

9781455200733
ISSN:

1018-5941

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