The Japanese central bank, the Bank of Japan, has reached a point at which it has two options left: (a) make monetary policy even more extreme, with helicopter money, or (b) conclude that their Keynesian solution of loose, looser, loosest monetary policy has failed. Last week, Haruhiko Kuroda announced that the Bank of Japan will buy more ETF’s (yes, more, the Bank of Japan already buys index funds) and lend more dollars to Japanese companies with overseas business (yes, the Bank of Japan was also already doing that). But the market wanted helicopter money. The result? The Japanese yen strengthened almost 2% against the dollar. In other words, Kuroda will have no choice at his next policy meeting: either implement helicopter money and make his extreme monetary policy even more extreme, or admit that his extreme monetary policy has failed and loosen the reins.

Waiting for Inflation

The Japanese Central Bank Surrenders?


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