Japan QE will be a surprise only if don't happen

Will Japan continue with its own Quantitative Easing programs? This is a rhetoric question. Japan has no choice than to print money, as it has an enormous and the biggest among developed countries government debt, accounting to 208% of GDP. So with a conservative monetary policy thegovernment is doomed, as even a small increase in interest rates will bankrupt it. So Bank of Japan (BoJ) must keep the interests low, and supply the market with enough liquidity to guarantee the government will have enough money to re-finance its debt.

QE programs (called in Japan "stimulus" programs) are an important tool to conduct this policy. In fact Japan is so deeply indebted that the country must use all money-print tools at a full power. While US debt is "only" 100% of GDP, the FED has some more flexibility to start and stop different tools. Keeping low interest rates is constant, but the QE programs are from time to time and moving them among months can help to better manage the inflationary explosion that happens.

With 208% debt Japan has no such choice. BoJ must buy bonds with no stop and the yens in circulation have to increase. The balance sheet of the Central bank is the most pumped as a share of GDP, compared with other developed countries. So Japan is a leader in money print. Along with this Japan statistics is the best in hiding inflation and even discovering a "deflation" problems that requires intervention. In fact BoJ has already almost 20 years of intervening to "stimulate" the growth. An no growth achieved, just more and more debt...

April 22nd 2012

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