What central banks may have the world over is a failure to communicate.
Officials are struggling to spell out their visions for monetary policy, often amid a chorus of competing views. Chairman Ben S. Bernanke is trying to manage expectations about when the U.S. Federal Reserve will slow asset purchases and raise interest rates. Bank of Japan Governor Haruhiko Kuroda’s reflation-push is backfiring by driving up bond yields. European Central Bank President Mario Draghi is dashing investors’ hopes he once kindled for extra stimulus.
The dumping of debt is reminiscent of the waves of selling that took place in the 1980s, only back then investors were worried about fiscal, not monetary, policy. Yardeni coined the phrase “bond vigilante” to describe the financial institutions involved.
In Japan, Kuroda also has faced a surge in 10-year government-bond yields to 0.815 percent on June 14, even as the Bank of Japan boosted its bond-buying to defeat 15 years of deflation. The yen also has climbed to the highest against the dollar in two months, having touched its weakest level since 2008 in May after Kuroda began easing.
At the European Central Bank (ECB), Draghi is undertaking what Deutsche Bank AG economist Gilles Moec calls “some self-correction” in its perceived stance after remarks Draghi made on May 2 triggered an increase in stimulus bets. The central bank cut its benchmark rate to a record low of 0.5 percent, and Draghi said officials had an “open mind” about reducing the so-called deposit rate below zero.