In our cover story this week we talk about quantitative easing (QE) in Japan, the near certainty of another round later on this year, and our conviction that Bank of Japan will keep printing until it gets the inflation it wants (or more than it wants). I am asked what makes us so sure.
Albert Edwards of Société Générale offers the answer we would give. He normally has a pretty “healthy scepticism” about any government stating an objective and then actually achieving it, but not on this occasion.
This time he believes that “the new regime (both government and the Bank of Japan) is absolutely committed to achieving its end result.” It really “does have the appetite to print unlimited amounts of money.”
That’s partly because it needs to monetise its debt one way or another and to keep JGB yields down along the way of course. But there is something else going on here too. Most political promises are hard to deliver – that’s why they rarely get delivered. But that’s not a problem with creating inflation.
You don’t need to find any real money (you haven’t promised to build schools and hospitals); you don’t need to sit around budgeting, hiring, and strategizing; and (outrageously) you don’t need parliamentary approval. It’s just a matter of pressing a few buttons, training a few extra traders and deciding which assets to favour (in Japan they will soon be moving on to REITs and ETFs).
Better still, the side effects are no big deal in the short term: some are great for governments (rising real asset prices – hooray!) and the others (irritable savers and the like) can generally be bought off with a mini tax-break or two (something like the Nippon ISA…) and a promise of a better future.
So why not just keep on doing it until you get (roughly) what you want?