The Tale Of Two Central Banks

A Benjamin Cole post

  • Haruhiko Kuroda, Governor of the Bank of Japan, on May 22 said he will maintain his bank’s QE package of about $83 billion a month—but said he will do more if necessary, if Japan’s inflation rate does not consistently hit the BoJ’s 2% target by 2016. Japan just reported Q1 real GDP growth at 2.4% YOY and headline inflation of 2.3%. The Nippon unemployment rate is 3.4%.
  • Janet Yellen, Chairman of the Federal Reserve Board, on May 22 insisted the Fed is on track to raise interest rates this year. The U.S. real GDP came in just about flat in Q1, and H1 may be flat, or close to it. The headline CPI is…negative 0.2% in April YOY. The U.S. unemployment rate is 5.4%

Add on: Kuroda’s $83 billion a month of QE is bigger than the Fed’s QE at its peak, and yet Japan’s economy is about one-half the size of the U.S. economy.


Yes, I have played a little fast and loose with the above numbers. Headline inflation is not core inflation—although the inflation-hysterics trumpet headline inflation after every oil-price spike.

The proper Fed inflation gauge is the PCE chain-type index, which is up 0.3% in April YOY.

In you want PCE core, it is up 1.3% in April YOY.

The truth remains that PCE core is well below the Fed’s 2% official inflation target.

The Feeble Feckless Fed

The Fed remains utterly cowed by the prospect of inflation even approaching its 2% IT, despite the fact the U.S. economy is far less inflation-prone than in the 1970s, or despite the fact that 3% inflation for a few years would merely offset the sub-2% seen 2008.


Of course, as Marcus Nunes tirelessly points out, a NGDPLT is much better than an IT, not least for the abject cowardice an IT seems to impart to the Fed.

We will see how the U.S. and Japan economies play out in the next couple of years.

My money is on Haruhiko Kuroda. Oh, did I mention the Nikkei 225 is up 45% YOY?

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