Architect Of Abenomics Says No More BOJ Easing

Architect Of Abenomics Says No More BOJ Easing

Tyler Durden’s pictureSubmitted by Tyler Durden on 01/19/2015 08:09 -0500

And the hits just keep on coming.

A few days after the SNB shocked the world when it became the first central bank to pull out of its currency war with the ECB, leading to an epic defeat not only for the Swiss economy whose exports are now set to crash and various brokers and macro hedge funds who were short the Swissy (even as the SNB is nursing an epic balance sheet as as result of its failed 3+ year intervention), and following the latest Chinese snub of its overzealous stock gamblers, next up on the “shock and awe” bandwagon may be none other than the Bank of Japan (something we noted over the weekend in “Is The BoJ The Next SNB?”), where according to Reuters, any hopes for even more QE may be dashed after a ruling party lawmaker and one of the architects of Prime Minister Shinzo Abe’s “Abenomics” policies said that the Bank of Japan “does not need to ease monetary policy further this year unless the economy is hit by a severe external shock.”

As a reminder, it was just hours after the Fed’s QE ended on October 31, when the BOJ shocked markets with expanding its own QE even further, sending the USDJPY soaring above 120. The problem is that with the Nikkei tracking the USDJPY tick for tick, implying all risk gains come at the expense of currency losses, last Firday the Nikkei had fully roundtripped to the level seen just after the announcement, suggesting any further gains would require even more easing. Easing, which will not come unless Japan’s economy, already in freefall, literally implodes.

In the absence of sudden external shocks, the BOJ does not need to expand its stimulus again this year because the effect of its monetary easing in October last year should start boosting the economy by around this summer, he said.

“What more can the BOJ do? I think the central bank can hold off on action and take a wait-and-see stance for the time being,” Yamamoto told Reuters in an interview.

The BOJ’s stimulus program, dubbed “quantitative and qualitative easing” (QQE), was among the three arrows of “Abenomics,” a mix of stimulus policies and a growth strategy to unshackle the economy from 15 years of deflation.
The remarks by Yamamoto, a close aide to Abe, suggest the government does not feel an imminent need to pressure the central bank into offering another fresh stimulus.

“Japan will probably see inflation hit 2 percent in fiscal year 2016,” he said, adding that lower fuel costs will allow households to spend more on other items, keeping the economy in “very good shape.”

Yamamoto’s opinion is key, and a good predictor of future Japanese policy: a vocal advocate of aggressive monetary stimulus, Yamamoto had told Reuters in a previous interview on Oct. 8 that the BOJ needed to deploy additional stimulus to ease the pain from a sales tax hike in April last year. He also said Abe should delay a second tax hike, initially scheduled for October 2015. Both proposals became true. The BOJ expanded QQE three weeks later and Abe postponed the second tax hike by 18 months.

Which puts even more pressure on Draghi to act on Thursday, and act big because if the BOJ is out of the picture with additional stimulus (keeping its baseline to just around , the SNB is done, and the Fed is expected, even if by an increasingly smaller group of people, to hike rates, it leaves just Mario Draghi’s printers to provide the bulk of the $250 billion needed every quarter to keep markets from crashing. Recall, per Citi calculations, “The Magic Number Is Revealed: It Costs Central Banks $200 Billion Per Quarter To Avoid A Market Crash.” Because when one eliminates all the lies about keep inflation in check, avoiding a market crash is what it is all really about.

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