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Financial Stability and Monetary Policy Autonomy in Japan. Should Japan Peg the Yen to the Dollar?

Author

Listed:
  • Schnabl Gunther

    (Flossbach von Storch Research Institute, Cologne, Germany)

  • Schürmann Christof

    (Flossbach von Storch Research Institute, Cologne, Germany)

Abstract

Given rising inflation the Bank of Japan has come under pressure to tighten monetary policy. The paper examines the risks of an interest rate hike for the sustainability of Japanese government debt, the Bank of Japan and the Japanese financial sector and derives possible repercussions for national and international financial stability. It finds significant valuation and currency risks in the private financial sector that limit the Bank of Japan’s room for manoeuvre. Pegging the yen to the dollar would eliminate appreciation expectations and reduce inflation risk. The loss of freedom in monetary policy making would be small.

Suggested Citation

  • Schnabl Gunther & Schürmann Christof, 2025. "Financial Stability and Monetary Policy Autonomy in Japan. Should Japan Peg the Yen to the Dollar?," The Economists' Voice, De Gruyter, vol. 22(1), pages 25-46.
    • Handle: RePEc:bpj:evoice:v:22:y:2025:i:1:p:25-46:n:1006
    DOI: 10.1515/ev-2024-0078
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    More about this item

    Keywords

    Japan; monetary policy; currency risk; valuation risk; financial stability; exchange rate stabilization;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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