Is The Bank Of Japan Losing Credibility? Mohamed El-Erian Thinks So

The Bank of Japan kept its interest rates unchanged in a surprise move, as market participants were widely expecting the central bank to introduce further stimulus measures.

Following the decision to stand pat, the question investors are now asking is if the Bank of Japan has lost its credibility.

According to Mohamed El-Erian, Allianz's chief economic advisor, the central bank is not only caught in a trap, but it has indeed lost policy credibility.

"Whatever they do, they get it wrong," El-Erian said during CNBC's "Halftime Report." "They ended up doing too much last time, and they suffered a currency appreciation. They did nothing this time, and they got the same outcome"

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He continued that the bank has fallen into a "trap" that is "unfamiliar" in advanced economies – losing policy credibility.

El-Erian further suggested that the Bank of Japan "now straddles the line that separates effective policy and counterproductive measures." He added that the next central bank to cross the hypothetical line is the European Central Bank, followed by China's Central bank – the People's Bank of China, and the U.S. Federal Reserve follows after.

Finally, the famed economist stated that central banks are beginning to show signs of becoming less effective in delving financial outcomes.