Central bank watching is often characterised as a modern form of post-communist era Kremlinology, conjuring up images of an arcane science perpetrated by dry, stuffy academics. In the first of our articles, Tim Johnson departs from this tradition by invoking Shakespearian wordplay to explain the Bank of Japan’s surprising failure to announce any new monetary policy initiatives last week, which confounded investor expectations and triggered a sharp yen rally and Nikkei sell-off.
In the second of our pieces, Chi Lo debunks many popular misconceptions about China and explains how policy makers are seeking to strike a delicate balance between structural reform, economic rebalancing and policy easing. He argues that, by and large, the authorities are succeeding in their aims of managing these three dimensions (should we call this the “Possible Trinity”?) against a backdrop of slowing secular growth.
Lastly, Richard Barwell considers recent discussions about altering the treatment of sovereign risk for banks. Although some commentators have argued that the implications may be so significant that the measures may never be approved, he cautions against complacency, warning that some form of reform is very likely, and that contemplated changes may have significant implications for some (particularly weaker-rated) European banks and sovereigns.
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