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Japan Keeps Monetary Policy Steady

In a unanimous vote, the bank’s board stuck to its strategy of expanding the monetary base at an annual pace of 60 trillion yen to 70 trillion yen, or $586 billion to $684 billion, through purchases of government bonds, commercial debt and other assets.

Haruhiko Kuroda, the bank’s new governor, pledged to “respond flexibly” to the recent moves in Japanese government bond yields, as markets “searched for a new equilibrium.” He stressed that there was no cause for immediate concern.

“Yields are up, but at this stage there is no large impact on the real economy,” Mr. Kuroda said at a news conference after the bank’s decision.

He said that the central bank would continue to make large bond purchases to “keep up the downward pressure on interest rates.” He has also suggested that the bank would adjust the way it bought bonds in the market.

At its first policy meeting under Mr. Kuroda last month, the bank unleashed what analysts have called a “shock and awe” monetary policy, a sea change for a bank that had come to be known in recent years for its caution and conservatism.

Declaring he would do “whatever it takes” to combat falling prices, Mr. Kuroda announced that the bank would seek to double Japan’s monetary base, as well as the bank’s holdings of Japanese government bonds, by the end of 2014.

In recent days, worries have grown about rising interest rates in the government bond market, which could threaten Japan’s monetary policy. Japan is vulnerable to rising borrowing costs because of its high public debt, which is twice the size of its economy. Bonds are also the main financial asset held by banks, pension funds and insurance companies, making a surge in debt yields perilous.

The scale of Japan’s quantitative easing is striking. Assuming that the Japanese economy grows by 2 percent a year, the Bank of Japan would expand its assets to just under 60 percent of the country’s gross domestic product, according to estimates from CLSA Asia-Pacific Markets.

The assets of the Federal Reserve, which now total about 20 percent of the American economy, and the European Central Bank’s assets, which come to about 28 percent of the euro zone’s G.D.P., pale in comparison.

Japan stands out in another important way. Under Prime Minister Shinzo Abe, who took office in December and has been the main champion of the bank’s new boldness, Japan is coupling its monetary push with heavy government spending.

Barely two months into office, Mr. Abe pushed through an emergency stimulus package of 10 trillion yen, and the Japanese Parliament is expected to pass an initial budget of 92.6 trillion yen for 2013, with heavy spending on public works.

By contrast, the Fed and the European Central Bank have been forced to depend on monetary policy alone to stave off stagnation and bring about an economic recovery. In both the United States and Europe, a significant increase in government spending remains controversial.

Still, critics have pointed to Japan’s skyrocketing public debt as proof that such spending is not sustainable. The latest spending packages, they say, will be the final push that could send Japan plummeting into a Europe-like debt crisis. Defenders of the bank’s monetary policy had argued that Japan’s bold stimulus efforts would not push interest rates higher, because the central bank promises to buy bonds the government issues.

But in recent days, yields have been volatile, with the key 10-year nominal government bond yield hitting five-year highs last week before later settling down. Traders blamed the central bank’s purchases, saying they created a lack of liquidity in bond markets.

“We think Kuroda has done a great job in boosting asset prices by raising asset price inflation expectation, but he now has to calm down the sentiment in bond market,” Masaaki Kanno, chief economist at JPMorgan Securities Japan, said in a research note. “This is quite challenging.”

China to Investigate Top Economic Policy Maker

The agency, the Central Commission for Discipline Inspection of the Communist Party, which runs corruption inquiries involving senior officials, said Mr. Liu was “suspected of grave violations of discipline, and is now under investigation by the organization,” according to a report from Xinhua, the state news agency.

The report came more than five months after the journalist, Luo Changping, boldly challenged Mr. Liu and investigators by publicly accusing Mr. Liu of shady business deals and other wrongdoing like threatening to kill his mistress and overstating his academic qualifications. Mr. Luo laid out the charges on the Internet in early December. They lingered there, despite a denial by a spokesman for Mr. Liu and the power of censors to erase the postings, which fanned a public uproar.

Yet for months it appeared that Mr. Liu might survive the scandal. Since 2008, he has been a deputy chairman of the National Development and Reform Commission, an agency that oversees many areas of economy policy. Until March, he was also head of the National Energy Administration, and he made several public appearances after Mr. Luo made the accusations, according to Chinese news reports.

The Xinhua report did not detail the official allegations against Mr. Liu. But Mr. Luo, a deputy editor of Caijing Magazine in Beijing, said he was sure they were related to his accusations.

“I know there’s a direct connection, but I can’t say any more,” Mr. Luo said in a telephone interview.

“I had felt panicky before because nothing was happening, but I’ve breathed a sigh of relief now that this has happened,” he said, referring to the inquiry.

Mr. Liu, 58, could become a trophy in the effort by China’s new leader, Xi Jinping, to persuade disenchanted citizens that he is serious about ending abuses by officials. Since becoming party chief in November, Mr. Xi has vowed to clamp down on corruption, extravagance and self-enrichment; he has said both “flies” and “tigers” — junior and senior officials — would come under scrutiny.

Other officials under investigation for corruption and other crimes include Bo Xilai, a former Politburo member whose wife, Gu Kailai, was convicted and in August given a death sentence, which was then suspended, on charges of murdering a British businessman. In April, the former railway minister, Liu Zhijun, was charged with corruption and abuse of power.

The Central Commission for Discipline Inspection wields broad powers to detain officials and pursue secretive inquiries. In serious cases, the commission can hand officials over to the police and prosecutors to be investigated on criminal charges, which almost always end in convictions and sentences by party-run courts.

Despite Mr. Luo’s apparent vindication, Chinese leaders are wary of letting the public seize the initiative in fighting corruption. “What I really hope to see is more change at the institutional level to fight corruption, not just focusing on individual cases,” Mr. Luo said.

Lew’s Visit to Europe Reveals a Wide Policy Divide

Mr. Lew pointed to evidence that increased government spending and looser monetary policy had helped the United States recover at a much faster pace than the Continent has. But even as some European leaders expressed concern about rising unemployment and deepening recession, it was clear that Europe’s political constraints — and Germany’s insistence that bringing down deficits and reassuring lenders was the best route to sustained growth — were preventing a more expansionary approach from taking hold.

“Nobody in Europe sees this contradiction between fiscal consolidation and growth,” said Wolfgang Schäuble, the German finance minister, sitting alongside Mr. Lew at a joint news conference in Berlin on Tuesday. “We have the common position of a growth-friendly process of consolidation, or sustainable growth.”

Consumed by the problems of the American economy and its efforts to hold off deep budget-cutting proposals from Republicans in the United States, the Obama administration has hardly been in a position in recent years to lecture other nations on good policy.

But Mr. Lew’s trip to Brussels, Frankfurt, Berlin and Paris — his first swing through Europe since becoming Treasury secretary — gave the administration an opportunity to highlight the diverging economic fortunes of the United States and Europe and to make the case that more expansionary policies could actually help with budget deficits.

The United States has pointed out that its quick rescue of the financial system, front-loaded stimulus measures and delayed budget-cutting have helped foster 14 straight quarters of growth and a falling unemployment rate — even if the recovery has proved sluggish by historical standards.

In contrast, Europe has lurched from one crisis to another, hobbled by a complicated political structure and skittish financial markets. It continues to suffer through rising joblessness and economic stagnation. Greece, Spain and Portugal all remain mired in deep recessions, and even the large economies of Germany, Italy and France were contracting as well at the end of 2012.

A Treasury official, speaking on condition of anonymity to discuss the sensitive diplomatic conversations, said that while the Americans did not endeavor to lecture the Europeans, they did focus on the profound need for growth on the Continent, for the good of Europe as well as the world.

As Mr. Lew said in Berlin, “The driver for economic growth will be consumer demand and policies that would help to encourage consumer demand in countries that have the capacity would be helpful.”

But some of the biggest levers that governments employ to bolster their economies during a downturn are seemingly out of the question in Europe, given its political constraints and some countries’ heavy debt burdens. Any calls for more stimulus spending, less austerity or looser monetary policy face entrenched resistance in powerful Germany. The view there, shared in other Northern European countries like Austria and Finland, is that the European Central Bank has already gone far out on a limb with measures to prevent a collapse of the 17-nation euro zone.

Michael Heise, chief economist of the German insurance giant Allianz, said Tuesday that the central bank should already be thinking about how to reabsorb some of the money it has pumped into euro zone banks by issuing unlimited cheap loans. Otherwise, he said, easy money policies could feed new asset bubbles and remove pressure for economic reforms.

Looking on the bright side, the Treasury official said the European representatives all recognized the urgent need to focus on employment and growth. The official also said that there seemed to be growing pragmatism in Europe, with more officials willing to allow budget flexibility in certain economies, for instance.

Jack Ewing contributed reporting from Frankfurt and Steven Erlanger from Paris.

Economic View: Fed Monetary Policy Drives Best at Higher Speeds

First, what has the Fed done recently? Until September, its bond-buying program was explicitly limited in size and duration. Fed policy makers then replaced it with an open-ended program, whose pace was to be determined by progress in healing the labor market. And they adopted simpler, more positive explanations for their actions — jettisoning the gloomy, expectations-killing language that cited wretched economic prospects to justify every expansionary move.

Then, in December, the Fed surprised markets by replacing its somewhat confusing predictions for interest rates with numerical guidelines. It said it would keep the rate it controls — the federal funds rate — near zero at least until the unemployment rate fell below 6.5 percent or inflation rose above 2.5 percent.

Under the circumstances, it was significant that the policy makers took these actions at all. The economic data that came out before the September meeting were actually better than expected. And, based on forecasts released after the meeting, members of the Fed’s policy-making committee were slightly more optimistic about prospects for employment and output growth than they had been three months before. That they nevertheless adopted a more expansionary policy can be read as an admission that they hadn’t been doing enough earlier.

The pledge to keep rates low, even if inflation edged above 2 percent, is particularly consequential. For the last several years, the Fed has acted as if 2 percent were not just a target but a ceiling that should never be breached. But coming out of a terrible recession, with unemployment excruciatingly high, a period of very rapid growth is needed to repair the damage — and it wouldn’t be surprising for such growth to push inflation a bit over 2 percent. A Fed acknowledgment that 2.5 percent inflation would be tolerable for a short while isn’t a sign that it has lost its commitment to price stability. Instead, it’s a strong statement that it is committed to ensuring a faster recovery.

The more positive language, along with the “we’ll do whatever it takes” approach to bond buying, seems designed to reassure Americans that conditions will improve. This, too, is important. With short-term rates close to zero, the Fed’s main tool is expectations management. If it can persuade people to expect more growth — and yes, a little more inflation — it may help encourage companies to stop sitting on cash and start investing again.

The new policies are improvements, but I don’t want to oversell them. As I suggested in a previous column, a more definitive policy shift — like adopting a new target for monetary policy — would likely have a greater impact on expectations and in stimulating the recovery.

And the new policy’s numerical parameters are too conservative. According to the Fed’s own assessments, normal unemployment over the longer run is well below 6.5 percent. If inflation remains low and unemployment gets down to 6.5 percent, there’s no reason to rush to raise interest rates.

The most pressing problem, though, is that the Fed’s commitment to its new policies appears shaky. Soon after the December meeting, some members of the policy-making committee spoke out against the action — killing some of the positive buzz created by the policy statement and by a spirited news conference by the Fed chairman, Ben S. Bernanke. Also, the minutes of the December meeting showed that some who had voted for the new guidance on the fed funds rate were skeptical about the complementary action on bond-buying.

No one of the Fed’s recent actions is particularly powerful on its own, but together they create a sense of aggressive expansion and commitment to recovery. If the Fed now stops some of them, giving the public a mixed message, the positive effect on expectations could easily evaporate.

So why has the Fed moved slowly, and why are some policy makers threatening to undo the recent actions? In a recent paper, Prof. David Romer of the University of California, Berkeley (my husband), and I found that pessimistic views about the effectiveness and costs of expansionary actions have played a major role in limiting Fed moves over the last few years. Policy makers worry that such actions will do little good and that they could cause inflation, distortions in financial markets and losses on the Fed’s portfolio.

I can’t say for sure that those views are wrong today. We just don’t have enough experience with situations like the current one to have conclusive evidence one way or the other.

But our paper shows that in two periods when the Fed made terrible errors, the same kinds of pessimistic views were present. Faced with the Great Depression of the early 1930s and the high inflation of the early and late 1970s, monetary policy makers did little because they were convinced that action would be ineffective.

Subsequent events proved both decisions wrong. In the 1930s, a propitious gold inflow allowed the administration of Franklin D. Roosevelt to conduct monetary expansion without the Fed. Real interest rates plummeted, expectations improved and investment spending and consumer purchases of durable goods took off — jump-starting the recovery. At the end of the 1970s, a new Fed chairman, Paul A. Volcker, concluded that monetary policy absolutely could reduce inflation, and he led the Fed to raise interest rates to historic highs. The recession that followed was painful, but inflation did come down — and it has been low ever since.

WHEN monetary policy makers meet again at the end of this month, they should keep these historical lessons in mind. At the very least, the Cassandras on the committee might want to reread the policy record from the 1930s. The degree to which some of them sound like their Depression-era counterparts might shock them — and give them pause.

The Fed’s new more aggressive policy shows every sign of being helpful, and there are no indications that the feared costs are materializing. So rather than trimming the policy before it can bear fruit, why not give it a chance?

Even better, why not give it some extra oomph? Rather than just continuing the bond-buying program, accelerate it somewhat. Instead of just reiterating the numerical guidelines on the funds rate, policy makers could follow the suggestion of Narayana Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, that they lower to 5.5 percent the unemployment level at which the Fed starts to consider raising interest rates. And if Mr. Bernanke wanted to be truly aggressive, he could broach the idea that in a weak economy, a strong dollar isn’t necessarily desirable.

The important thing is that hypothetical fears shouldn’t stop the Fed’s evolution. History is on the side of doing more, not standing on the sidelines.

Christina D. Romer is an economics professor at the University of California, Berkeley, and was the chairwoman of President Obama’s Council of Economic Advisers.

Mandatory Retirement Policy Prompts Weil Partner to Move to K&L Gates

Mary Korby, a longtime partner at Weil, Gotshal & Manges in Dallas, joined K&L Gates' Dallas office as a partner on January 1.

Korby says she moved to K&L Gates because she had reached Weil Gotshal's mandatory retirement age and wanted to continue to practice law.

"Their philosophy is: If you don't push more mature partners out the door, you don't have room for the younger to come up. I was not at all ready to quit, so I ended up at K&L," says Korby, a transactional lawyer who chaired Weil Gotshal's associate compensation committee until August 2012.

Korby says she considered several firms for the next chapter of her practice, but K&L Gates has a "really incredible" network of offices overseas, which fits with her cross-border work.

"It was the international scope and also just the depth of expertise across the various practice areas. There are, what, 2,000-plus attorneys here," Korby says.

Korby joined K&L Gates' Dallas office with commercial litigator T. Gregory Jackson, who came from Geary, Porter & Donovan in Dallas.

Jackson says it is a good move for his practice because he has clients that "have needs on a national basis."

"I see it as a way to expand my practice and be able to retain matters that my clients have on a more national basis," he says.

Neither Jackson nor Korby would identify clients they brought with them to K&L Gates, which has 46 offices.

Craig Budner, administrative partner in Dallas for K&L Gates, says the firm is thrilled to have Korby and Jackson in its partner ranks. He says Korby adds international transactional expertise, and Jackson has done a lot of oil and gas litigation, which is an area K&L Gates wants to strengthen.

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Drafting a Nonprofit Organization's Social Media Policy

Lawyers often find themselves representing nonprofit organizations or serving on nonprofit boards. When the issue of a social media policy arises, it is important to understand how social media has changed the communication landscape and the critical elements of a policy. It is not practicable, advisable or even legal in some cases to prohibit or unduly restrict the social media activities of employees. Guidelines for acceptable use, however, are crucial to mitigating the risks inherent in social media engagement. Here are a few FAQs regarding drafting a nonprofit?s social media policy.