BOJ Increases QE
by Stephen Lendman
QE doesn't work the way it's used.
On April 4, the Financial Times headlined "Bank of Japan follows the Fed, on steroids." Pedal-to-the-metal reflects new governor Haruhiko Kuroda's policy.
At a news conference he said:
"This is an entirely new dimension of monetary easing, both in terms of quantity and quality."
Except for emergency late 2008 easing, its the largest ever BOJ monetary madness. It's not "short-term emergency" driven. It's a "deliberate change in philosophy."
It abandons everything BOJ said about monetary policy before. It's high risk. The fullness of time will have final say. It may hit home like a hammer.
Plans are to double BOJ's monetary base. Kuroda wants it done in less than two years. The Fed doubled its balance sheet more slowly. Any significant rise in JGBs (Japanese government bonds) means Kuroda's strategy failed.
Until now, BOJ spent 21% of Japan's GDP on QE. It mostly bought short duration bonds. It hoped doing so would "leak out of the banks into the rest of the economy." It never happened.
Plan B is high-risk. Kuroda's doubling down on Plan A. He'll buy longer duration bonds. He'll spend 40% of Japan's GDP on QE. FT calls doing so an "unprecedented monetary 'big bang.' "
Japan's government bond market stands at 240% of GDP. It's the highest debt burden among developed countries. Overall inflation hasn't followed. Nothing's guaranteed it won't.
Kuroda plans to buy around 70% of JGBs. He'll keep doing it for two years. If inflation begins rising, purchases will slow. Instability may follow. Bond prices may fall sharply. Yields will rise. Losses could damage BOJ's balance sheet and credibility.
PNB Paribas Tokyo economist Ryutaro Kono believes "(i)f you pursue a radical policy, asset prices may change greatly, but if you set off a bubble and make the overall economy unstable, then you end up getting your priorities wrong."
Sumitomo Mitsui Asset Management economist Hiroaki Muto said ("t)argeting the monetary base will lead to a huge increase in current account balances that commercial banks keep at the BOJ, but I'm still not sure if this money will move through the economy."
Principalis Asset Management's Pippa Malmgren said "(w)e've never seen such unconventional methods used to create as much inflation as possible."