The Dark Side of BOJ Policies
The Bank of Japan will continue to pursue loose monetary policy to "revive" their economy. The media calls their efforts "Abenomics," named after Prime Minister Abe, who very publicly declared that he would push the BOJ to pursue policies that would ignite inflation. This will supposedly end Japan's 20+ year "soft depression" where mild deflation ruled.
As a result of all the talk about igniting inflation, investors flocked to Japanese equities and drove up their stock market - around +50% before last week's violent drop.
When the stock market rose, everyone talked up Abe's economic policy as just what Japan needed. The talk was almost universally positive. Confidence was high that the policy couldn't fail - so high that you wondered why it wasn't tried before. It just seemed so right, so obviously right. Pump money into the economy by any means necessary to ignite the economy. Hmmm...where have we heard this before? Oh, right, that's what the Fed has been doing since 2008. And that's worked well, hasn't it?
Well, now with the Japanese stock market tumble, the doubters begin to appear: Maybe these Abe people don't know what they're doing; or maybe they should be pumping even more money into the economy; or maybe they're going too fast and need to ease up. How familiar all this is! We've heard it all since 2008 when the Fed started pumping.
Oh, and one the thing about the Japanese stock market tumbling could very well be simply that it rose too far too fast: 50% in less than 6 months.
But wait, there's something else happening now that may be a sign of trouble. Interest rates have jumped up. But didn't central bank chief Kuroda say he was going to keep them down as long as it took? What's this? Didn't the bond market listen to Kuroda?
Maybe this economist hit the nail on the head:
As a result of all the talk about igniting inflation, investors flocked to Japanese equities and drove up their stock market - around +50% before last week's violent drop.
When the stock market rose, everyone talked up Abe's economic policy as just what Japan needed. The talk was almost universally positive. Confidence was high that the policy couldn't fail - so high that you wondered why it wasn't tried before. It just seemed so right, so obviously right. Pump money into the economy by any means necessary to ignite the economy. Hmmm...where have we heard this before? Oh, right, that's what the Fed has been doing since 2008. And that's worked well, hasn't it?
Well, now with the Japanese stock market tumble, the doubters begin to appear: Maybe these Abe people don't know what they're doing; or maybe they should be pumping even more money into the economy; or maybe they're going too fast and need to ease up. How familiar all this is! We've heard it all since 2008 when the Fed started pumping.
Oh, and one the thing about the Japanese stock market tumbling could very well be simply that it rose too far too fast: 50% in less than 6 months.
But wait, there's something else happening now that may be a sign of trouble. Interest rates have jumped up. But didn't central bank chief Kuroda say he was going to keep them down as long as it took? What's this? Didn't the bond market listen to Kuroda?
Maybe this economist hit the nail on the head:
“We are at a scary point with the BOJ not really knowing the side effects of its easing,” said Richard Koo, the chief economist at the Nomura Research Institute in Tokyo. “It took more than a month for the market to realize the dark side of BOJ policies.”More...
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