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The Yen is rallying and it raises big questions about central bank power

Photo by Keith Tsuji/Getty Images

The Japanese yen – despite the decision by the Bank of Japan to implement a negative interest rate policy just over a week ago – rallied strongly in overnight trade, bolstering the growing view among markets that central bank policy is losing its potency.

The USD/JPY daily chart from below shows the recent movements in the yen.

After rallying above 121.50 in the immediate aftermath of the BOJ decision on January 29, the yen has done nothing but strengthen with the USD/JPY falling to as low as 115.20, the lowest level seen since November 2014.

Only last week Bank of Japan governor Haruhiko Kuroda described the decision to implement negative interest rates as “the most powerful monetary policy framework in the history of modern central banking”.

He also said “there is no limit to measures for monetary easing,” hinting the bank could implement further policy easing if required.

However, if this is the reaction to the most powerful monetary policy framework in the history of modern central banking, one has to wonder what, if anything, central banks can do to achieve even a modest policy benefit from now on.

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