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

Author/Editor: Syed, Murtaza H. ; Yamaoka, Hiromi
Publication Date: May 01, 2010
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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.
Series: Working Paper No. 10/114
Subject(s): Asset management | Central bank policy | Economic recovery | Financial crisis | Interest rate increases | Japan | Liquidity management | Monetary measures | Monetary policy

Author's Keyword(s): Monetary Policy | Quantitative Easing | Exit
Publication Date: May 01, 2010
Format: Paper
Stock No: WPIEA2010114 Pages: 14
US$18.00 (Academic Rate:
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