To: macavity who wrote (5225 ) 12/7/2001 1:58:12 PM From: John Pitera Read Replies (1) | Respond to This briefing article from today, dovetails some of our recent talk on Japan.BoJ will buy foreign bonds to accelerate the quantitative easing process. While we still have our doubts about the ultimate credibility of such a plan, we are somewhat surprised by the amount of support that has been generated outside of the more traditional factions of the Japanese government. pick up steam a few weeks ago in the wake of a series of articles in the Financial Times . The articles highlighted the need for the BoJ to step-up its easing campaign in an effort to combat what had become a very real deflationary spiral in Japan. Given the lack of traditional policy options however, it was argued that monetary expansion should focus on more radical measures such as the purchase of unwanted assets, or perhaps foreign securities and currencies. current account expansion through foreign bond purchases offers another means of stimulus that has long been a favorite of Japan, a weaker yen. dampened multiplier effect surrounding the banking sector's unwillingness to lend Not to be outdone, we are also afraid that the competitive pressures of a protracted global slowdown could unleash a wave of unwanted backlash towards Japan. secured the support of influential White House economic advisor Larry Lindsey, who noted that "it is an idea to encourage the effectiveness of monetary easing ." In addition, even the OECD has endorsed the move, suggesting in its economic survey of Japan released earlier this week that current account expansion through foreign bond purchases would help the bank avoid a further inflation of the JGB bubble. Even more surprising may be the fact that the BoJ seems to be warming up to the idea, as board member Nakahara actually proposed foreign bond purchases of roughly Y200 bln a month at the October 29 meeting . While Nakahara's plan was voted down by an eight to one margin, BoJ board member Miki said Thursday that currency intervention and foreign bond buying should be considered as a possible addition to traditional measures such as JGB buying and fiscal stimulus. use monetary policy as a means of avoiding structural reform should be considered inherently unproductive. This thought actually fits quite nicely with the stimulative effects of a weaker yen, which would only exacerbate the flow of capital to competitively disadvantaged sectors of the economy that need to shed, not add capacity. In other words, while we respect the near-term inverse correlation between the yen and the Nikkei, we would be skeptical about the recovery signals coming from a rise in Japanese stocks on the back of what essentially would be a competitive devaluation of the yen.
