How independent is the BOJ? How independent is any central bank?

With interest rates pressing lows and governments needing those low rates to reduce the cost of budget deficits as well as investors needing liquidity to buy debt, there is a growing questions whether central banks are independent. There is the facade that there is independence through arguments between the monetary and fiscal authorities and news reports of disagreements, but in the end, the central bank will still be beholding to the government for appointments and its livelihood. Central banks do not want to be blamed for fiscal failures. They have shown a willingness to play for the benefit of the fiscal authorities.

The issue of independence has always been a question for the Bank of Japan. The BOJ has eased for the last two months, but usually shows a level of caution that may be out of place in Japan's slow growth environment. A recent joint statement between the BOJ and the government suggest that they both want to solve the problem of deflation. The statement placed equal weight on the central bank and government doing their parts to solve the deflation spiral and increase growth.  The Bank of Japan is given autonomy for currency and monetary control but having a joint statement suggest coordination and a joint goal.

The new policy of providing unlimited funds to commercial banks is similar to what is being used by the BOE through their Funding for Lending scheme which began in July. Unfortunately, a shortage of loanable funds has not been the problem in many countries. It is an issue of the real costs of those funds. In Keynesian speak, there is not enough aggregate demand for the amount of money outstanding. This is a fiscal government problem and not one of coordination.