Do you remember when I made those negative remarks about the BIS? This is representative of their competence:
Andrew Crockett, general manager of the Bank for International Settlements (BIS), told the symposium
that expansionary monetary policy would reduce pressure on the need to carry out reforms in the banking
sector and run the risk of widening the crisis in the Asian region.
He also said increasing money supply through steps such as open market operations would have little
effect on boosting Japan's domestic demand.
The machinery is being put in place to expand the money supply in Japan as we speak. The BOJ has proven that interest rates and money supply have elastic and inelastic states. If the BOJ changes short rates from .5% to .25%, they don't need to print one yen note to do so. That is, people won't borrow and create demand deposits as part of doing business if the BOJ lowers rates by buying securities. If there was an extended period of large loan demand, rates were 6%, and then the BOJ tightened cooling the demand, the economy would slow, but the desire to make money wouldn't. If the BOJ then lowered rates to 5%, the money supply would grow because the demand for loanable funds would rise. The desire to make money would cause the money supply to grow. That process had been eclipsed by the pursuit of extended neo-mercantilism so that interest rate manipulation did not create the Pavlovian response of money supply change. Instead of a liquidity trap, Japan has been in a "rate trap".
Crockett's claim is exactly incorrect and his justification is part of the myth of the problem of Japan. His conclusion is the one held by the vast majority and it reminds me of why the majority of American economists claimed it was a bad idea to lower taxes: causes the budget deficit to rise and hence rates. Three disconnected factors, but heavy thinking has them all hooked together. When Japan inevitably uses direct measures to increase money supply, demand will rise rapidly, and the yen also. That means gold will rise relative to the dollar.
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