Japan's bulked-up monetary bazooka is the last chance for quantitative easing.
The Bank of Japan shocked investors on October 31 by announcing a 60 per cent boost to its bond-buying programme. The monetary authority now promises to increase its holdings of government bonds by ¥80 trillion ($723 billion) a year, compared with its previous pledge of ¥50 trillion.
The move, which came a day after the US Federal Reserve wound down its six-year-long experiment with asset purchases, looks like a reaffirmation of the power of money-printing. Yet the BOJ's decision was far from unanimous. In April 2013, the entire policy board supported newly appointed Governor Haruhiko Kuroda's clarion call for slaying deflation. This time, the plan passed with a narrow 5-4 majority.
It's little surprise that scepticism is creeping in. In two years, the BOJ's stockpile of government bonds has doubled to 20 per cent of GDP, but investors' inflation expectations for 2017 are stuck at 1.4 per cent, far short of the central bank's two per cent goal.
Worse still, chances of further disinflation are high. If Prime Minister Shinzo Abe implements a second increase in the country's sales tax rate next year as scheduled, weak private demand might enter an extended slump. The BOJ will come under intense pressure to throw in the towel - or try something even bolder.
Abe doesn't have many good choices. His best bet is to lift investor sentiment with retirees' money. On October 31, Japan's the $1.2 trillion public pension fund announced plans to double its allocation for Japanese shares to 25 per cent.
The BOJ does have other options, though. One approach would be to cut the 0.1 per cent interest rate it pays banks for reserves parked with the central bank. That could spur lending and help revive private demand.
An even bolder move would be to embrace "helicopter money." Instead of buying government bonds, the BOJ could send newly printed cash directly to households. Doing so would draw the central bank even further into uncharted territory. The fig leaf of separation between fiscal and monetary policy would be removed.
The more unconventional the policy, the more unpredictable the consequences. What's clear is that even in the country that invented the policy, patience with QE is wearing thin.
The Bank of Japan shocked investors on October 31 by announcing a 60 per cent boost to its bond-buying programme. The monetary authority now promises to increase its holdings of government bonds by ¥80 trillion ($723 billion) a year, compared with its previous pledge of ¥50 trillion.
The move, which came a day after the US Federal Reserve wound down its six-year-long experiment with asset purchases, looks like a reaffirmation of the power of money-printing. Yet the BOJ's decision was far from unanimous. In April 2013, the entire policy board supported newly appointed Governor Haruhiko Kuroda's clarion call for slaying deflation. This time, the plan passed with a narrow 5-4 majority.
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Worse still, chances of further disinflation are high. If Prime Minister Shinzo Abe implements a second increase in the country's sales tax rate next year as scheduled, weak private demand might enter an extended slump. The BOJ will come under intense pressure to throw in the towel - or try something even bolder.
Abe doesn't have many good choices. His best bet is to lift investor sentiment with retirees' money. On October 31, Japan's the $1.2 trillion public pension fund announced plans to double its allocation for Japanese shares to 25 per cent.
The BOJ does have other options, though. One approach would be to cut the 0.1 per cent interest rate it pays banks for reserves parked with the central bank. That could spur lending and help revive private demand.
An even bolder move would be to embrace "helicopter money." Instead of buying government bonds, the BOJ could send newly printed cash directly to households. Doing so would draw the central bank even further into uncharted territory. The fig leaf of separation between fiscal and monetary policy would be removed.
The more unconventional the policy, the more unpredictable the consequences. What's clear is that even in the country that invented the policy, patience with QE is wearing thin.