By James Saft
(Reuters) – For months, markets have been dancing to central bankers’ tune, but that may now be changing.
It must have been fun to be a central banker in the early part of 2013: You say “jump” and Mr. Market says “how high?”
That seems to have ended rather abruptly in the 24 hours beginning with the Bank of Japan’s disappointing response to bond market volatility on Thursday and including Ben Bernanke’s anodyne but market-roiling comments on Wednesday on the possibility of a policy taper.
Tokyo’s Nikkei tumbled more than 7 percent on Thursday, European shares suffered their worst day in about 10 months and even the perpetual paper wealth machine known as Wall Street fell, with the S&P 500 down by as much as 1 percent before leveling off.
The re-introduction of this kind of two-way risk, both for markets and for policymakers, highlights some of the difficulties of the heavy reliance on asset-pricing markets as a policy tool.