INSUBCONTINENT EXCLUSIVE:
By Andy MukherjeeMonetary medicine in Japan is keeping the economy alive, but with nasty side effects
The search for a new cure should begin with a simple question: What if the Bank of Japan were to throw out its money-printing
presses
Instead of pushing more yen into an economy that has already absorbed a three-fold increase in cheap central-bank funds in five
not a charge that can be leveled against Haruhiko Kuroda
bills to 48 per cent of outstanding securities, from just 12 per cent
He has also made the BOJ one of the top 10 shareholders in 40 per cent of Japanese publicly traded companies, according to Travis Lundy, an
analyst who publishes on Smartkarma.
Then, in early 2016, Kuroda embarked on an even bigger adventure to expunge the deflationary mindset of
Following the lead of Denmark, Sweden, Switzerland and the euro area, the BOJ embraced a policy of negative policy interest rates.
A year
Core inflation excluding fresh food came in at 0.8 per cent in June
theory be hurtling toward 1.5 per cent.
Not only are prices off target, a side effect of negative interest rates is now obvious in worsening
profitability of Japanese banks
so easy for banks to pass on negative interest rates to depositors
Japan is a highly cash-dependent society
The cashless payment rate is only 20 per cent
Sweden may stop using cash by 2023
The BOJ would create new electronic money and give it to the government against a perpetual bond sold by the finance ministry to the
Higher spending would spur inflation
Should people try to get around the problem by swapping the yen gift into dollars, the Japanese currency would weaken
That, too, would be inflationary
The interest rate on bank reserves could then be raised to zero, giving banks much-needed relief
The BOJ could eventually make helicopter money its main policy tool, and unwind purchases of dated government securities, ETFs and corporate
bonds, allowing asset markets to function normally again.
Abe rode to power in December 2012 by promising muscular leadership, and by
smaller economy every year
To his credit, Abenomics did manage to arrest a 15-year slide in nominal GDP, which was pulling the country into irrelevance against a
resurgent China.
But the job is far from done
and beyond by stepping up belt-and-road financing
outlawing cash is still an experimental drug
