According to RK, “The BoJ is a Risk”:
On the component of Abenomics that has garnered the most attention — massive monetary easing by the Bank of Japan — Mr. Koo remains skeptical.
“Monetary easing, even though I don’t like it, I have to admit it did produce results” including an 80% rise in stocks to their peak in May, and a 20% drop in the yen against the dollar, the economist said.
But “qualifies” the result:
Though “what happened is great,” Mr. Koo said it was the result of foreigners buying Japanese stocks, not renewed optimism by Japanese investors.
Maybe agrees with Williamson that QE is deflationary:
In his view, the central bank pumping more money into the economy is useless if people don’t use the cash. That also means the easing won’t stop price declines, or deflation, which is caused by a lack of borrowing and spending.
Mr. Koo said that relying on more easing could even be a liability and hoped Mr. Kuroda “won’t push his luck too far.”
Not being credible is optimal for the BoJ!
Mr. Koo’s worst-case scenario is a bold move by Mr. Kuroda that causes Japanese government bond holders to believe the central bank will reach its 2% inflation target and unload their bonds. The subsequent yield spike would make it impossible to deliver more stimulus and leave banks with big losses on their balance sheets before the economy really recovers.
PS: Mark Sadowski, care to comment?