What's going on?

The head of the Bank of Japan (BoJ) made a big speech on Monday in which he acknowledged some of the problems with the aggressive policies it�s been pursuing in an effort to boost Japan�s economy. Still, he said the BoJ is willing to take further steps, if necessary.

What does this mean?

The BoJ has a big meeting coming up on September 20th and 21st. Many investors are expecting it to announce further action aimed at boosting Japan�s economy. In his comments on Monday, the head of the BoJ mentioned some of the negative, unintended consequences of its imposition of negative interest rates, including the fact that they hurt banks� profits (because negative interest rates force banks to pay a fee on the cash they hold). That, in turn, means banks have less money to lend to people and businesses � which discourages spending. The BoJ might instead focus on other measures to try to boost the economy, including some �new ideas.�

Why should I care?

The bigger picture: This might be what it looks like when a central bank runs out of ammunition.
The BoJ owns about 40% of all Japanese government bonds and is a major shareholder of most of Japan�s biggest companies (yes, it�s, effectively, buying stocks of Japanese companies). Such extreme action by a central bank in a developed economy is virtually unheard of (although actions from the European Central Bank are only a little less extreme). Despite these efforts, Japan�s economic growth remains low. The lesson might be that economies shouldn�t be overly reliant on central banks for future growth.


For markets: The values of major currencies are important to global investors.
Aggressive central bank action tends to devalue one�s currency (click here for an explanation) – and a cheaper currency makes it easier for a country�s companies to sell goods abroad (e.g. their products are cheaper versus products from other countries). We�re all competing for a part of one big pie (the global economy) – and a cheaper currency usually gives one an edge.