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By Francesco Canepa and Leika Kihara
FUKUOKA, Japan (Reuters) – The biggest European central banks that met their global counterparts in Japan this weekend may have glimpsed their own future.
With a stagnant economy and a declining population over the past two decades, Japan has long been seen as a harbinger of the euro area.
The Japanese bloc's "japonisation" talks are expected to gain momentum after European Central Bank President Mario Draghi last week canceled his plan to raise interest rates to unprecedented levels. Open the door to an additional easing policy.
This has given rise to parallels with the Bank of Japan's protracted recovery policy under Governor Haruhiko Kuroda, which has swallowed up 45% of the country's public debt as it strives to achieve a goal of inflation of 2%.
"There is a real risk of Japanification at the moment," said a eurozone central bank official at the meeting of finance ministers and central bank governors in Fukuoka, in the south from Japan.
The similarities are obvious. Japanese and euro-zone governments have been slow to implement politically costly reforms that are necessary to increase their productivity, including by relaxing their labor markets.
This created a negative loop through which low borrowing costs enable loss-making "zombie" businesses to survive, blocking capital that could be used by more competitive firms, limiting productivity growth and perpetuating the need. of low interest rates, badysts say.
CARBONCOPY?
That means that monetary policy could be copied to carbon is less clear. Unlike the BOJ, the ECB must seek consensus among a group of various national central banks.
In Japan, the BOJ can continue to print money to keep ultra-free borrowing costs under the administration of Prime Minister Shinzo Abe, who supports his policies for growth.
The prospect of an infinite supply of central bank money to finance public debt is however difficult to sell for Germany – the most powerful economy of the euro zone.
Following the BOJThe purchase of stock index funds and other risky badets should also be strongly resisted in the euro area, where equities are in the hands of a few healthy people.
Past experiences have shown that lessons do not always travel well.
the BOJ adopted negative interest rates in 2016. He drew lessons from similar measures already put in place by central banks in Europe.
The measure has been deeply unpopular with the Japanese people and has lowered long-term interest rates too much, angering financial institutions that have seen their margins plummet.
This has made deepening negative rates among the least likely options, even if BOJ must calm down further, according to badysts.
the BOJThe lessons on quantitative easing are not very promising either. Mbadive purchases of debt have dried up the liquidity of the market and raised serious concerns that the institution will run out of bonds to buy.
This is a situation that will be too familiar for ECB decision-makers facing the additional challenge of respecting each country's quotas when selecting bonds to purchase.
However, some central bankers in the euro area see the BOJ as a model of success, as Kuroda's bold stimulus helped to prevent an economic slowdown.
"The BOJ is much more advanced than the ECB on the road to recovery and shows that you can do even more quantitative easing without endangering financial stability, "said a central banker from the eurozone.
"The situation in Japan would be much worse if the BOJ not intervened, as indeed he was before. "
(Edited by Kim Coghill)
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