Basically, the Fed controls U.S. monetary policy. It is often described as independent and in a narrow sense this is true: the Fed is self-financed and does not require presidential approval to change interest rates. However, the Fed can be abolished or have its terms of reference changed by Congress. The chairman is appointed by the President for a four year term only and is conventionally a political appointee. In practical terms therefore, it is virtually impossible for the Fed to follow an interest rate policy significantly at odds with that desired by the U.S. Administration.
Japan Key Interest Rates. The rates to watch are: Uncollateralised (unsecured) overnight call rate sets the tone for money market rates. Official discount rate (ODR) lagging rate of psychological significance. Japan is nearing the end of a decade long period in which most interest rates have been deregulated. These changes mean the Bank of Japan (BOJ) now sets only its official discount rate. at which it lends to commercial banks, and the liquidity deposit rate. Other interest rates are set in the open market and the BOJ aims to influence them. indirectly, through its market operations. The most important short term interbank money market rate is the uncollateralised overnight call rate. The BOJ closely monitors call rate movements and puts most emphasis on them when managing the market. The BOJ appears to have an unpublished target zone for the call rate but the market usually gets an idea of the BOJ's target range and credit stance by interpreting the signals in its daily operations. For the past several years, the market has focused more on the amount and timing of BOJ operations. Rates set by the BOJ have rarely ruffled any market feathers, as they have been largely in line with prevailing market rates. The weekly average call rate. and its level at intervention time, can provide signals on the BOJ's policy stance. Since the BOJ prefers to signal monetary policy changes through the uncollateralised overnight call rate. the official discount rate (ODR) is now typically a lagging indicator of monetary policy. Nevertheless, the ODR still has an impact. The ODR applies to the rediscounting of commercial bills and official loans secured with Japanese government bonds (JOBs), specially designed securities and bills corresponding to commercial bills as collateral. If the ODR is increased, financial institutions find that the cost of raising funds is affected directly, via the higher cost of acquiring discount window loans from the BOJ and. indirectly. through the increased money market rates that usually precede, and often trigger an ODR change. The opposite is true for a reduction in the ODR. Under the Bank of Japan Law (1942) the Bank's policy board has the authority to formulate, direct and carry out monetary policy. While ultimate control of monetary policy rests with the Ministry of Finance, the Bank of Japan Law gives the central bank sole responsibility for changing the official discount rate. There is no hard and fast rule.
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