The first interest-rate cut in seven years had to be traumatic for Bank of Japan staffers.
Not only did it undo years of struggling to lift borrowing costs from zero, but few investors seemed to care. The indifference is partly attributable to the tardiness of the 0.2 percentage point move, which lowered the BOJ’s benchmark rate to 0.3 per cent.
The bigger reason was the US Federal Reserve. The Fed’s half-point rate cut to 1 per cent last week came two days before the BOJ’s move, and it surprised no one. What shocked many was a decision to provide $30 billion each to the central banks of Brazil, Mexico, Singapore and South Korea.
The internationalization of the Fed has been unfolding for years. From Seoul to Santiago, investors often care more about what happens in Washington than they do about actions taken by local monetary authorities. The central bank has 12 districts across the U.S., yet the last 15 years have seen the creation of de facto spheres of Fed influence around the globe.
Consider October 29 as the day the Fed formalized the arrangement by creating areas 13, 14, 15 and 16. The Fed’s decision to expand efforts to unfreeze markets in emerging nations raised eyebrows in Asia, eclipsing its rate reduction and that of the BOJ.
The International Monetary Fund also announced an emergency loan program that almost doubles borrowing limits for emerging economies and waives demands for austerity measures. That, too, surprised many observers.
Good housekeeping
The IMF signaled that it will move faster with aid than in the past. It also showed the urgent need for an overhaul of the global financial order well before a November 15 meeting of 20 industrialized and developing nations in Washington.
Five years from now, Fed Chairman Ben Bernanke will be regarded either as brilliant or reckless for so directly reaching around the globe. At the moment, it looks like an innovative and bold step. Already, it’s done more to stop the bleeding in markets than have officials in, say, Seoul.
It’s one thing to accept euros, yen, pounds or Swiss francs in these kinds of ''liquidity swap facilities.’’ It’s quite another to accept emerging-market currencies. The Fed is bestowing its “Good Housekeeping’’ seal on economies that are following responsible policies yet are feeling the brunt of the credit crisis.
This activity raises a number of questions about what US authorities are up to. Here are three relevant to Asia.
US’s friends
One, is the Fed playing geopolitics? Since the US created the problems oozing around the globe, it should help others deal with them. That’s especially true if the US wants to have any friends a year from now.
The Fed had already created similar swap lines with the European Central Bank and monetary authorities in Australia and New Zealand.
(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
