No Limit To Kuroda’s Monetary Easing?

By Paul-Martin Foss

Bank of Japan governor Haruhiko Kuroda two weeks ago stated that there is no limit to the Bank of Japan’s monetary easing measures. “There aren’t any such things as a quantitative limit or anything, any numbers we can’t overcome,” he was reported to have said. Kuroda must apparently adhere to the Weimar School of Economics or perhaps its more recent neo-Weimarian offshoot, the Zimbabwean School of Economics. Can Kuroda actually believe that there is no limit to what the Bank of Japan can do?

In theory, of course, there is no limit to the Bank of Japan’s monetary easing measures. The BOJ could double or triple the monetary base overnight. It could do that every night for months. It could purchase stocks, bonds, and other assets with abandon. It could just create new reserves out of thin air and distribute them to Japanese banks. But does Kuroda honestly think that expanding the monetary base like that could be done without a practical limit? Does he really believe that creating money without limit would not lead to hyperinflation and a complete collapse of the Japanese economy? Does he really believe that he can create new yen ad infinitum and not have the Japanese people abandon the weakened yen in favor of other currencies?

The BOJ could also push its negative interest rates even further into negative territory. It could expand the scope of those negative interest rates and push them down to -20% or -1,000%. After all, he said there are no numbers they can’t overcome, right? But obviously those negative rates would result in a collapse of the banking system as banks, savers, and investors sought to hold cash under their mattresses rather than within the banking system. Does Kuroda really think that there is no negative interest rate number he and the Bank of Japan cannot overcome?

It would be hard to believe that Kuroda is serious when he says there is no limit to what he can do. So what is he trying to do by saying that there is no limit to his possible actions? The past two weeks have been filled with further statements from him threatening to engage in further monetary easing. One hopes that he is just trying to jawbone markets into thinking that more monetary easing is on the way so that markets price in the effects of monetary easing without the BOJ having to do anything. But that means that Kuroda is just engaged in braggadocio, puffing his chest out to try to bully markets into doing what he wants them to do. That’s the type of behavior one would expect from a 12-year old posting on Reddit from his mother’s basement, not from the Governor of the central bank of the world’s third-largest economy. It’s the behavior of someone who knows he is impotent, that his toolkit lacks the ability to fix anything, but is absolutely desperate to keep the rest of the world from finding out.

The statements, views, and opinions expressed in this article are solely those of the author and do not necessarily represent those of EMerging Equity.

Courtesy of the Carl Menger Center for the Study of Money and Banking