At Tuesday’s monetary policy meeting, the Bank of Japan inched closer (a lot closer?) to joining the European Central Bank and the Federal Reserve Board of the US in blanketing the world with money. Quite a bit of confusion is evident in the English translation of the Bank of Japan decision.
I, for one, have a difficulty in understanding the exact meaning of this:
The Bank judges “the price stability goal in the medium to long term” to be within a positive range of 2 percent or lower in terms of the year-on-year rate of change in the CPI and, more specifically, sets a goal at 1 percent for the time being. [Full press release here]
One presumes that the inflation rate range that is being targeted is 0% to 2%. For now, they are targeting the mid-point of this range, i.e., 1%.
In the statement that is ‘link’ed above, BoJ uses the phrase, ‘powerful monetary easing’ twice. Something that conveys a new sense of determination to pursue money printing with vigour? Bodes ill for inflation in the developing world.
I am also not sure I fully understand the following sentence:
By fully implementing the Program (notice the American spelling used) including the additional expansion decided today, by the end of 2012, the amount outstanding of the Program will be increased by about 22 trillion yen from the current level of around 43 trillion yen.
I suppose this desire to reach the targeted asset purchase level of 65 trillion yen from the current 43 trillion yen is reflective of the determination to pursue ‘powerful monetary easing’. After all, before the announcement of additional asset purchase of 10 trillion yen, the asset purchase programme stood at 55 trillion yen. That the current level was ‘only’ 43 trillion yen shows that the BoJ was not fully utilising its asset purchase limits.
There is a footnote at the end of this sentence:
In addition to purchases under the Program, the Bank regularly purchases Japanese government bonds at the pace of 21.6 trillion yen per year.
These are mind-boggling sums. It is hard to know/quantify the contribution of the Bank of Japan to the worldwide asset price bubbles in the last 12 to 15 years given that the Japanese economy had no other structural reforms that could unshackle animal spirits within the country and thus make use of that extra liquidity.
(Postscript: While I was searching for some academic/empirical work on the impact of the BoJ monetary policy on asset bubbles worldwide, I came across this comment in ‘Economist’ in January 2006 on Greenspan’s legacy. I must say that it is well written. Note the insightful and the prophetic comment on Bernanke. He is still in charge!)