Japan's Kuroda Restoration

Something quite special is happening in the Japanese economy. But I'm not sure if it's special enough, yet. Japan has a history of changing course dramatically, notably with the Meiji Restoration, which ended centuries of isolation; again in the 1930s and then after WW2. This could be another one of those big leaps forward. Haruhiko Kuroda, the Bank of Japan governor, has announced a 'new dimension in monetary easing' targeting a large rise in the monetary base and a doubling of government bond purchases. The objective is to raise inflation expectations and push cpi-inflation up to 2%, from around minus 1% currently. In fact this step is not that new, even for Japan. Firstly, it has already had several large monetary base expansions over the past 20 years while further back it has the far more aggressive example of Korekiyo Takahashi, the finance minister in the 1930s. From late 1932 the government was selling entire issues of bonds directly to the central bank. When people talk about, for example, the Fed 'printing money', this has not really been the case. The Fed has mainly been purchasing assets in the market, simultaneously crediting banks with reserves. Mostly these bank reserves have gathered moss: the transmission mechanism into new credit to the private sector has seized up. Demand in the US economy has lagged since the credit crunch and is now some 6% below trend. In the case of Japan, the economy is so far behind trend nominal GDP that it can never make up lost ground. But the swing to a clear inflation target along with a real commitment to achieve it is a good first move, if not far enough. In due course, the BoJ may indeed follow its 1930s path and 'print money' by directly funding government debt issues. Indeed, if it succeeds in pushing inflation up it may have to buy bonds directly just to keep bond yields from rising too much. The QSL is from JOOR Osaka, heard on AM on 1179 kHz in Morgan Bay in 1992. The station later contacted me and I was interviewed on one of their programmes per telephone.