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Can Bank of Japan Buy the Kitchen Sink?

April 11th, 2013
in econ_news, syndication

Econintersect: Kiochi Hamada, an advisor to Japan Prime Minister Shinzo Abe, has told Reuters that assets that can be purchased by the Bank of Japan (BoJ) are much wider ranging than have been included in QE (quantiative easing) by other central banks.  Hamada mentioned ETFs (electronically traded funds) and REITs (real estate investment trusts) as possible investment options available to the central bank.

Click below for larger image.

abe-kuroda-hamada

Follow up:

An aggressive fiscal and monetary policy is being implemented by Abe and BoJ governor Haruhiko Kuroda in an effort to finally end a 20 year period that has seen frequent periods of deflation.  The new policy is aimed at boosting inflation in Japan to 2%, a level the country has not seen except for brief periods (totalling about 7% of the last 20 years) since 1992.  See the following graph from Trading Economics:

Click on graph for larger image.

Japan-inflation-since-1990

A quote from Hamada published by Reuters indicates that the examples of ETFs and REITs is not meant to be limiting:

"The BOJ can buy whatever amount of ETFs and REITs it can. It can even buy government bonds more forcefully, as if it were to buy the entire amount in markets.  There are also other various measures, although the BOJ must also be mindful of the drawbacks."

Hamada did not elaborate on the potential drawbacks.

Hamada also downplayed the improtance of the 2% inflation target:

"I'm of the view that Japan doesn't have to see 2 percent inflation. Just 1 percent inflation is enough, as long as the economy recovers.  For the economy to recover, you need gradual price rises. It's nonsense to think that the price target must be met at all cost."

A level of 1% inflation has not been achieved since 1994 except for the brief intervals when 2% occurred, so lasting inflation of 1% would be a new experience for post-bubble Japan.

Editor's note: Hamada, an economics advisor to PM Abe, is not an insular Japanese economist; he is professor emeritus of economics at Yale University.

Sources:









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