William Pesek is a renowned Tokyo-based journalist and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.”
Jerome Powell may want to work on his Japanese language skills as the U.S. Federal Reserve goes the peer route in Tokyo.
The Fed, of course, has long since entered the Bank of Japan down the quantitative easing rabbit hole. That was after the global crisis in 2008, seven years after the BOJ started QE. Last week, however, came in from Powell who many of us knew was inevitable: America is officially locked under zero by the BOJ, and forever.
Yes, Gov. Powell 2023 timeline for reviewing Fed epic bond buying program. But it seems to mean 2033 and, that’s weird, it’s known because of the Japanese deceptions themselves.
If Prime Minister Yoshihide Suga wants to save a few yen, it could just be the entire staff of Tokyo BOJ Gov. Save Haruhiko Kuroda. Just replace a computer program and move on. My point here is not to deny the diligence standards of the BOJ. It wants to show how this QE test just doesn’t work out.
Yes, we can blame it on how consumer prices fell for just seven months straight on COVID-19. However, even before the pandemic, Kuroda ‘s massive stimulus from 2013 never saw inflation more than halfway to the 2% target. And even that was “bad” inflation – driven by rising energy costs.
That puts Kuroda in the unfortunate role of BOJ leader crying wolf. The more he says that the central bank will not “delay” doing more while it is in a pat stance, the more bond traders will accept that the institution is all on vacation at least. How can Kuroda recapture the trend and, possibly, show a way out of this liquidity trap at Powell’s Fed?
First, the BOJ must suspend conventional thinking to wildly non-controversial situations. It is about five years since Kuroda burned the bazooka that gave him such authority. Its massive currency explosions from 2013 to 2016 weakened the yen, generated higher profits and were well timed with a global economy suffering a rare synchronous growth spurt.
These explosions included making the BOJ the largest stock buyer. Kuroda contributed significantly to the purchase of trading currencies in 2016. By 2018, the BOJ found itself in the odd position of majority shareholders in 40% of registered Japanese companies. That same year, its balance sheet raised the size of Japan’s $ 5 trillion economy, the first for a Group of Seven Nations.
Now the longest-running global trading momentum is creating a shame of wealth: a return of around $ 130 billion on BOJ stock bets as of March 1, according to NLI Research. Thanks to the approximately $ 55 billion of ETF purchases the BOJ makes each year, the BOJ now holds a bet of more than 5% in 485 Japanese companies.
Those numbers could make the People’s Bank of China blush. And it creates a “moral threat,” which means that this big subsidy program, well, rewards diversity. The BOJ isn’t even the only “whale” building shares. So the Government Pension Investment Fund is $ 1.6 trillion.
If you are a CEO of Japan Inc. enjoying the average rise of Nikkei stock towards 30-year highs, why bother investing in innovation? Why implement drastic restructuring or staff changes when your back is at Kuroda & Co.
Thanks to the $ 55 billion it invests in trade funds each year, the Bank of Japan has now taken out more than 5% pledges in 485 Japanese companies. © Reuters
Kuroda’s team seems to understand this as a problem. On Friday, the BOJ indicated that it may be slamming back on the 6 trillion yen annual target for ETF purchases. It also widened the range of movement around the 10-year bond yield target to 0.25 percentage points from around 0.2. But this is just the least the BOJ can do to remind the world that its Tokyo headquarters is still there.
It is high time that the BOJ surprised markets for the first time in years. One way: using large chunks of the stock windfall to fund programs to drive innovation, productivity and training, and pour its stock benefits into the services industry.
The BOJ could also lead the change it seeks in corporate circles. It could focus stock buying on companies sharing profits with employees, encouraging sufficient numbers of women to manage and reducing investments in research and development. The BOJ could buy corporate bonds of companies scrapping cross-share settlements, deploying loads of external leads or planning necessary to bring yields back to Japan.
Kuroda’s team could inspire regional governments on the front lines of an aging and more vulnerable nation. Perhaps the quid pro quo is that the BOJ is embracing local debt of places that cultivate a successful start-up scene. Kuroda was able to use his gravitas to lobby the Suga government to pay out another round of 100,000 yen ($ 917) to Japanese residents.
The BOJ also needs to devise a proper exit strategy as this “Hotel California” is becoming a little overcrowded with central banks from Washington to Frankfurt to Sydney. It’s hard not to tie the dots to the Eagles ’classic tune about how“ you can explore anytime you want, but you can never leave ”and the post-2008 economic order .
The problem with the Japanese with which Powell’s team intervenes is that even the place that brought this problem to the universe has not yet learned its main lessons either.