Japan is where all the action in monetary policy is taking place, and the news this weekend is no exception. Haruhiko Kuroda, the man who is likely to become the new governor of the Bank of Japan following his nomination by prime minister Shinzo Abe, has apparently been taking lessons from Mario Draghi.
Bloomberg’s Michael McDonough tells the story:
*KURODA SAYS BOJ TO PURSUE MONETARY POLICY TO CONQUER DEFLATION -Bloomberg
— Michael McDonough (@M_McDonough) March 4, 2013
more: *KURODA SAYS HE WILL DO WHATEVER IT TAKES TO END DEFLATION -Bloomberg
— Michael McDonough (@M_McDonough) March 4, 2013
*KURODA SAYS BOJ EASING ISN’T AIMED AT WEAKENING THE YEN -Bloomberg
— Michael McDonough (@M_McDonough) March 4, 2013
*KURODA SAYS CAN’T DENY MONETARY POLICY AFFECTS CURRENCY MARKET -Bloomberg
— Michael McDonough (@M_McDonough) March 4, 2013
The crucial phrase there is “whatever it takes”. That’s the phrase which has gone down in history as the turning point in the euro crisis. Last July, Mario Draghi promised to do “whatever it takes” to preserve the euro — and from that moment, Italian bond yields fell almost consistently until mid-February when traders realised how shambolic the election was gearing up to be. This chart from Business Insider shows just how strong the effect was:
Kuroda will be hoping he can have half the effect of Draghi. But since the effectiveness of promising to do whatever it takes is dependent on everyone believing that you actually will, Japan has an advantage in this game. The lengths the government has gone to to tackle deflation already far exceed anything any other country has attempted, and it would appear they are only getting started.
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