Buying government bonds with longer maturities should be an option for the Bank of Japan if the European debt crisis worsens said a former deputy governor seen as a potential candidate to take the reins at the central bank.
TOKYO — The Japan government’s nominee to be the next central bank governor outlined more forceful policy prescriptions on Monday to finally defeat deflation, saying he would not set any limits on the amount of cash the Bank of Japan pumps into the economy.
Underlining expectations he would be an aggressive governor, Haruhiko Kuroda told lawmakers the BOJ’s current policies were not powerful enough to boost inflation to 2 percent, a target he said the central bank should strive to achieve in two years.
It is no secret that unlike other banks who, while directly intervening in the bond market only manipulate equity prices in relative secrecy (usually via HFT-transacting intermediaries such as Citadel), the Bank of Japan has historically had no problem with buying equities outright, traditionally in the form of REITs and equity-tracking ETFs.
As Citi's Todd Elmer notes, today's BoJ outcome looks far closer to 'shock and awe' than disappointment. It appears the BoJ's actions may speak as loud as their words for now - JPY is weakening and the Nikkei is rallying after Kuroda's last shot at a first impression appeared to beat expectations (covering for disappointing macro data - despite six months of jawboning and a 20% devaluation).
We’ve long said that a dramatic and sustained spike in JGB yields would be catastrophic for Japan, whose central bank is onboarding the entirety of gross issuance onto its balance sheet and whose government is running what is effectively the largest ponzi scheme the world has ever known. Here’s WSJ summing up the situation:
Marc Chandler submits:There has been an obvious build-up of expectations about the U.S. jobs report today. The dramatic jump in the ADP estimate sparked a large upward revision in expectations, even though the shortcomings of its estimate and its track record are well known. In part, the optimism also reflects the recent string of data that has convinced even many of the cynics that the U.S. economy has accelerated.
We recently introduced the four main candidates in the 'how easy can we be' glamor parade that is the BoJ Governor race. With Abe potentially set to name his nomination as early as this week, the rhetoric is heating up. Citi grades the BoJ governor candidates on a scale of 1 to 5 from the perspective of JPY bullish/bearish. Mr.Kazumasa Iwata will be the most JPY bearish candidate as he is a proponent of the BoJ’s foreign bond purchase.
TODAY'S biggest news is the word that the European Central Bank is intervening in European debt markets in force, buying up Spanish- and Italian-government debt. The ECB spent last week expressing reluctance to take this step, but without it, the euro crisis threatened to spin irretrievably out of control. What are these purchases all about, and will they work?