No More Dancing Naked in the Streets …

When the BoJ’s board last voted in favor of enlarging its “QQE” (qualitative and quantitative easing) program even further, from already enormous amounts to nothing short of gigantic amounts, the board’s vote was 5:4 in favor, with outgoing board member Ryuzo Miyao considered to have cast the “swing vote”.

As Chris Woods of CLSA remarked at the time, in a society like Japan’s with its strong focus on consensus, “they might as well have been dancing naked in the streets”. Indeed, something like this has never happened before, although some resistance to Kuroda’s plans already reared its head previously. At most though there would be one or two members voting against further inflationary measures, but never nearly half of the board.

As Reuters reports, this problem is about to be dealt with this year. The newest nominee to the BoJ’s board is Yutaka Harada, reportedly a “committed reflation supporter”. That should actually read “inflation supporter”, because “reflation” is really just a euphemism for “inflation”. While he replaces another inflationist, the government will soon have the oipportunity to tilt the balance on the board more permanently toward loose monetary policy with the next appointment, as one of those who voted against further easing will leave the board in June. At this point one can probably be fairly certain that no suspected “hawk” stands a chance of being nominated by Shinzo Abe’s government anytime soon.


Inflation proponents Koichi Hamada (the Tuntex Professor Emeritus of Economics at Yale University), left and Yutaka Harada, right (as an aside, another well-known Yale-educated inflationist is former Argentine central bank governor and serial money printer Mercedes Marco Del Pont)

Photo credit:


According to Reuters:


“Japan’s government is likely to name academic Yutaka Harada, a proponent of aggressive steps to end deflation, to the central bank’s policy board, the Nikkei newspaper said on Wednesday. The Waseda University economist is expected to be nominated on Wednesday to replace fellow monetary policy dove Ryuzo Miyao, whose term on the nine-member board ends on March 25, the financial daily said, without citing any sources for the information.

Harada, 64, a Tokyo University graduate, has served as chief economist at the Daiwa Institute of Research and as a senior official at the Economic Planning Agency, which was absorbed into the Cabinet Office in a government administrative overhaul. Among his works, Harada is co-author of the book “Reflation Will Revive the Japanese Economy”, with Bank of Japan Deputy Governor Kikuo Iwata and Koichi Hamada, a reflationist adviser to Prime Minister Shinzo Abe.

Last April, Harada praised BOJ Governor Haruhiko Kuroda for “changing market expectations in one push” with his bold monetary easing, “bringing about a pickup in business”. Harada told the Yomiuri newspaper at the time that the BOJ “should take additional monetary supply steps quickly, if they are deemed necessary”, suggesting it could increase its purchases of exchange-traded funds.

His selection to a five-year term must be approved by parliament, where Abe’s coalition holds a strong majority. Harada would join the central bank amid speculation it may ease policy again as plunging oil prices make its 2 percent inflation target look difficult to achieve.

The outgoing Miyao was considered the swing vote in October’s 5-4 decision to expand the BOJ’s massive “quantitative and qualitative” easing policy of buying huge amounts of government bonds and other assets to end Japan’s nearly two decades of deflation and anaemic growth. That split vote has given greater significance to the board’s composition, as it suggested the difficulty Kuroda might face should he want to ease further to hit his inflation target in the coming fiscal year.

The government will get a chance to shift the board’s balance in June when it replaces former utility executive Yoshihisa Morimoto, who voted against the October easing.


(emphasis added)

Evidently the author couldn’t refrain from mentioning the nonsense that the decline in oil prices is somehow “bad” for a country that doesn’t produce a single drop of oil.


Miracle Workers

And yes, one can only marvel at how smartly Japanese business has “picked up” due to the Kuroda BoJ’s debasement of the yen. They have wrought a real miracle with this policy. We have a strong feeling though that Mr. Harada will immediately push for more of the same. Below you can see why:


1-japan-industrial-productionJapan, industrial production – click to enlarge.


2-japan-household-spendingJapan, household spending – click to enlarge.


3-japan-gdp-growth-annualizedJapan, GDP growth, quarterly annualized – click to enlarge.


According to the logic of the Keynesian inflationists infesting modern-day central banks, the above data can only mean one thing: regardless of how insane the size of an inflation and deficit spending program already is, it is obviously still not big enough. Never mind that Japan has been at it for 25 years running already, with nothing to show for it but a catastrophically large mountain of public debt, the servicing of which by now devours a full 25% of government tax revenues in spite of government debt sporting yields so minuscule one needs an electron microscope to see them. More of what somehow hasn’t worked in a quarter of a century is clearly needed!


Another Disturbance in the Farce?

In this context, it is interesting that the yields on 10-year JGBs have recently quite suddenly increased from 19 basis points to 39 basis points. While both are tiny yields, this is a doubling from the recent lows. Eventually, the JGB market will break, with repercussions that are likely to be felt around the world, so we are always alert to unexpected developments in this market.


4-10-year JGB yield10 year JGB yield – a sudden surge from 19 to 39 basis points – click to enlarge.


In light of so many government bond yields declining into negative territory around the world of late, we find this recent move interesting. This is especially so as there have been rumors that the BoJ could soon face difficulties in buying the full amount of JGBs it wants to buy, because Japan’s commercial banks no longer want to sell any of their holdings. The main reason for this is that the banks feel they need to hold on to their remaining JGB holdings in order to have sufficient collateral for repo transactions available. However, Japan’s large government pension fund and the post office will presumably supply the BoJ for a while, as they are busy shifting their investment allocation away from JGBs into stocks as well as higher-yielding foreign assets.

The BoJ has practically become the JGB market in recent months, not least because no-one dares to sell short in the face of a buyer with unlimited buying power. Liquidity in the market has dried up completely as a result. As we have noted previously, when a single large player “becomes the market”, trouble is often not very far away.



We continue to believe that Japan’s graying society needs inflation and currency debasement like a hole in the head. However, all indications are that the policy will continue to be pursued, perhaps even more forcefully that before, now that Mr. Harada is about to join the BoJ’s board.


tic-toc-graphicThe first thing that comes to mind in this context is“かちかち(kachi-kachi), a.k.a. tic-toc.


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2 Responses to “Another “Reflation Proponent” to Join BoJ Board”

  • The comment about oil being a cause for more easing has to have come from a brain dead idiot. And there are other brain dead idiots repeating it. If they wanted to create demand, they would give the people some purchasing power. To watch the rest of the world follow them down this rabbit hole doesn’t surprise me. I recall thinking back in 2000, when hearing criticism of Japan how their efforts were textbook Keynesian and would be employed here as well. It is really nothing but a cover for massive theft from those that earned the money to those that can acquire it politically or throw prior inflation policies. They should all be bankrupt. But, then again, there is a sizable organized crime syndicate in Japan that has to be satisfied.

  • Japan’s culture has evolved in many ways since the elder generations were in their prime. We have seen more adoption of a western based lifestyle. I wonder – do the people see the correlation between westernization and impoverishment of Japan? That is tough to know. But it seems producers get punished in our global industrial complex.

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