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(A) decision by Japan’s central bank on Thursday, by a vote of 7-1, to scrap its unprecedented super-loose monetary policy has raised concerns about the possible fallout on the global economy …

… But because no major central bank has ever had such a loose policy, no one knows for sure how to end it smoothly. Some economists say making the decision to end the loose-money policy might have been the easy part; the bank must now avoid sending shock waves through the country’s recovering economy and through world markets.

One reason for all the anxiety about the behavior of Japanese investors is the size of their holdings overseas. Japanese individuals and companies held overseas assets worth 107.7 trillion yen, or $915 billion, at the end of 2004, according to the Finance Ministry, the most recent data available.

The pace of Japanese investment overseas has also been quickening in recent years …

… A reversal of these huge flows of cash could have even broader ripple effects in the global economy, some economists say. If money grows scarcer in the United States, interest rates could rise there, too. Economists say this could lead to a situation — far-fetched but not entirely implausible — in which the Bank of Japan deflates the American real estate market, as homebuyers face more expensive mortgages.


More information: Economists Are Watchful as Tokyo Ends Loose-Money Policy – By Martin Fackler, The New York Times

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Updated: January 2018

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