Abe Advisor Says It's Time To Pull The Plug On QE

Tyler Durden's picture

In what may be one of the few sane policy recommendations to emerge out of Japan in years, Nobuyuki Nakahara, an adviser to Prime Minister Shinzo Abe and an influential former Bank of Japan board member said the BOJ should make a "clean break" from its current policy
approach when Kuroda's term ends next spring, roughly at the same time as Yellen's term is ending (at which point a Trumpian Fed is said to arrive).  According to Nakahara, Kuroda's successor should announce a "second phase" of the BOJ's quantitative-easing program that end the BOJ's attempts at "yield control" and slashes purchases of JGBs by at least half, Dow Jones reported.

He described the central bank's efforts to control the yield curve as an attempt to make up for the "mistake" of introducing negative interest rates in early 2016.

In a radical - and accurate - departure from the status quo which will inevitably result in currency collapse and hyperinflation, controlled Inflation in Japan would return thanks to the correction in the yen's strength, the tightening of the labor market to full employment and a tick-up in wages, the former central banker said, so the bank should scale back its efforts to fuel it. If the bank is reluctant to act so boldly, it should commit to buying only as many JGBs as needed to reach 2% inflation by 2023 at the latest, he added.

"Under the new governor they should think hard about what they will do for the next five years," said Mr. Nakahara, who has already said he doesn't favor a second term for Mr. Kuroda.

According to Nakahara, continuing to buy government bonds at the same pace of JPY80 trillion per year, will limit the bank's leeway to respond in a crisis and stop interest rates from rising gradually as inflation picks up. A bigger problem is that as this website first, and then the IMF calculated, the BOJ will run out of monetizable debt in a little over a year, at which point it will have bond market failure to deal with as well.

The comments from Nakahara are a striking U-turn from one of the strongest Japanese advocates of QE, and are the latest indication that central bankers around the globe have realized the past 8 years of policies have led to a monetary policy dead end.

Last week, Japan's government announced the unemployment rate in February fell to 2.8%, the lowest since June 1994, which in a normal world where the Philips curve works would have led to a spike in price, and yet in Japan CPI barely rose by a mere 0.2% (and that'sonly after using one of the BOJ's endlesslyrevised CPI definitions).

"We have been fighting deflation for 20 years, and finally we have full employment, but the BOJ still hasn't gotten consumer prices up or considered what kind of relationship it should have with the finance ministry regarding their JGB holdings," he said. Well, the reason for the is demographics and technology, but one thing that is certain: keep pumping enough money, eventually shifting to the infamous monetary "helicopter", and you will get your inflation, just like in Venezuela.

Nakahara hinted as much when he suggested that one measure the BOJ could consider would be turning one part of its JGB holdings into a perpetual bond, he added.

In other words, instead of pushing away from unconventional policy, Abe's advisor was really calling for helicopter money, although since that is a Ministry of Finance responsibility and not that of the BOJ, one can see why the former central banker is eager to reduce the role of the BOJ.

Finally, Nakahara said there are risks for the BOJ and to his view. If domestic stock prices fall and the yen strengthens against the dollar, the bank would need to scrap its yield-curve control earlier and focus on bond purchases as its main policy tool. The same approach would also be necessary if global oil prices stagnate between $30 and $50 a barrel. Considering that the Yen is already surging, and a plunge in the Nikkei - which correlates one to one with the Yen - is now inevitable, means that far from scrapping QE, the BOJ may soon have to do much more of it, mercifully reaching Japan's monetary  endgame that much faster.

And speaking of the Yen, moments ago it just hit fresh five month lows.

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Truther's picture

Pull it.... I dare ya.

knukles's picture

Seriously
Who's he kidding?
We got a round robin currency devaluation and circle jerk at 100% full military power, afterburners full options none and he's gonna pull the plug.

LOL
Pull the plug.  What's he trying to do, demolish a building?

Oldwood's picture

If we had a dollar for every time.....

knukles's picture

Ah, contrails.  Raining political particulate matter for us from somebody, for something or other, costing us our money and probably poisoning us.
But it'll all be OK at official disclosure because they'll tell us they're gluten free.

Oldwood's picture

We had better start concentrating on a quality of life rather than quantity because I don't think any of us want to see this mess to its end.

Donald J. Trump's picture

Precisely.  For some reason they want us all to become Bangladesh.

Arnold's picture

Weapons Hot.

Seriously, the BOJ owns half of the Nikkei through ETF purchase.
Or very close to it.

aminorex's picture

True.  But the chart shows new highs in Yen, not lows.  USDJPY down means USD down, JPY up.  That always happens in an environment of emerging risk, as very conservative, risk-averse players wind down carry trades so massive that they move the trillion-dollar forex markets, the deepest, most liquid markets in the world.  This is like watching whales mate;  It is so massive that it has to occur gradually.  When watching from any safe distance, it is like nothing is happening, but if you get between them, you wll be crushed instantly.

wide mouth kid's picture

best comment i have read in a while

SixIsNinE's picture

costing us money ?
Brennan, in his happier days last year - said US pays $10 billion to spray ourselves, and that's just the starting $.

considering that spraying moved on to Europe over 10 years ago also - quite a hefty bill.

I still have the 1997 photo I took when driving on I95 DC to NYC - i pulled over in Jersey and took a photo of the couple dozen straight lines criss crossing each other.

DavidC's picture

Central bankers, they know so much about so little and so little about so much.

DavidC

SilverRoofer's picture

Dude looks Like

Long Duck Dong in his late 50's

T-NUTZ's picture
Abe Advisor Says It's Time To Pull The Plug On QE

 

... next Spring.

nmewn's picture

"Ack! Thbt! Nooooooooooooooooooooooo!!!" - Paul Krugman

knukles's picture

Please God, make that the sound of a heart attack.

Yen Cross's picture

 At first glimpse it seems Yen positive. Then you think about why all the QE infinity shit started in the first place. [20+ years ago]

 I can't wait to see how the BoJ is going to wind down their balance sheet, and keep yields under control on JGB's while they service the interest on all that debt.

 Seems very Yen negative to me. Paging Kyle Bass??? :-D

Oldwood's picture

We know reality will reassert itself eventually, we just don't know when. Sure smells close though, doesn't it?

Yen Cross's picture

  Rotten "Puffer Fish" syndrome. lol

SixIsNinE's picture

yeah, when Nike gets into the heroin smuggling game, it's smelling endish !

....from KTLA a couple days ago: (adding 20 lbs to the dogs crate after successful runs for years - probably a dumb thing)
SPOILER : the heroin packets were packaged in Nike Swoosh labeled plastic:

A dog was allegedly used as a drug mule to traffic more than $1 million worth of heroin to New York City, the Queens District Attorney said Monday.

The Avi Labrador mix had been shipped along the same route as many rescue dogs have been for years — and that has at least one major dog rescue organization, which is not at all involved in the drug crimes, concerned that this major bust will affect its legitimate, humane effort to save dogs' lives.

The dog had been shipped from Puerto Rico to JFK Airport, where authorities discovered the stash hidden in the false bottom of the animal's crate.

Samuel Seabrooks, 35, of the Bronx, and Carlos Betancourt-Morales, 27, of Carmel, New York, were arraigned Sunday for their alleged roles in the scheme.

They were charged with first-degree criminal possession of a controlled substance and second-degree conspiracy. A judge set their bond at $500,000 each, or $250,000 cash bail each.

Prosecutors said that the suspects met at an IHOP in the Bronx last Friday, then left in separate cars to JFK. They had a brief conversation at the airport’s American Airlines Priority Parcel Services area, then Betancourt-Morales walked into the cargo building and signed for a crate holding the dog.

He was pushing the crate on a rolling cart toward the exit when he was stopped by police.

The next day, officers executed a search warrant on the crate and found 10 bricks — 4 inches wide and 6 inches long — packed with heroin and stamped with the Nike Swoosh symbol and a five-pointed star, prosecutors said.

In all, the crate’s false bottom was carrying 10 kilograms of heroin, or about 22 pounds — worth more than $1 million in street value.

Chrissy Beckles, founder of the Sato Project, a dog rescue organization, said she is "shocked and angry" that this happened.

Farmer Joe in Brooklyn's picture

Yen...u on Twitter? Always like your posts and need more financial guys on Twitter. 

Hit me up @BurnItD0wn (the o is a zero)

Yen Cross's picture

 Thanks for the kind comment.  I keep things tight.

 I reserve my suggestions/posts for Z/H. 

  It's a crew I trust. No need to prove anything.

Golden Showers's picture

Fuck it. Game over, man!

Time to go back to making quality Nippon steel out of 19th century boat chains and go full on fucking samurai!

What else can you do? Your young men and women don't even fuck.

SixIsNinE's picture

i happened to check out the stats on illegitimate births the other day -
Japan is the ONLY country that hasn't risen like crazy over the last 30-50 years.

as a matter of fact, they've not much worse than 50 years ago - still in 3 to 4 percent, iirc....

USA blacks seen most damage - they are nearly 3/4 non married births

BandGap's picture

Turtle, without a shell, wearing a suit and glasses.

What do I win?

Arnold's picture

Balance Sheet whisperers.

buckstopshere's picture

It's the Fed's turn for some monetary heroin.

small axe's picture

maybe krugman, kuroda and bernanke can get together, knock back a few drinks, come up with a killer plan, and save the world again. Larry Summers might have some good ideas too, like how to manipulate futures and forex to mitigate the inevitable crash. Also Mr. Tim Geithner isn't busy (unless he's doing his taxes). Plus Eric Holder can draw up the legal documents. Anyway, the point is that the Best and Brightest Thieves of Our Generation (tm) are available...and they did such a bang-up job last time that we need them again this time. Replay, please!

Arnold's picture

Enabling is psychopathic jargon isn't it?

SixIsNinE's picture

as Radical MJ points out, .Goobs are simply the most organized crime syndicates / mafias. thus being successful.

ever backing up their bullshit with bigger more outrageous bullshit.

Mom: hi xie - have you chosen your gender yet? you know high school is next year?

Yen Cross's picture

  Hey Billy,

FLieD RiCe... Piece is smoking hot!   

 

 You made my day. Thanks

 

 

BitchesBetterRecognize's picture

Abe Advisor Said It's Time To Pull The Plug On QE.......................................................... SAID ON APRIL 1st 

venturen's picture

Don't worry the USA is still going to nuke Japan's economy when they become desperate....the yen is a thai call girl....she will do anything for a dollar 

Ali blabla's picture

Can anyone explain to me ... The yen has sunk to fresh 5 month lows? When i look at the above chart i see the yen strengthening against the dollar .. hahahaha lol

Yen Cross's picture

 hedges are being unwound.  When macro investors bought into U.S. markets they hedged on the F/X side of the trade. Those hedges are being unwound [jpy call options]

  This happened when everyone was short eur/usd last year, when Draghi turned the pump on again. Traders borrowed in euros, and bought call contracts to hedge their profits.

 Remember when all the normal[ squids and morticians] assclowns started pimping EU peripheral bonds? 

  * BTW, Charles Payne is an Ass Clown. He's a [sell side ] moron.

silverer's picture

But, but, you'll hurt the Keynesian's feelings!

Banker Buster's picture

Funny how these assholes just say lets leave the GIANT shit sammich they built to the next guy.  The people need to settle this up with Abe and company before or right after he leaves.  

Duc888's picture

 

 

Yup, this asshole as well as the other wall street criminals and banksters need a Colombian Neck-tie in the public square.

 

Or a reeeeallly slllllowwwwwwwwwwww fillet.  One layer of flesh at a time.

 

It was kinda cool how when the VC caught some of our troops they would tie them up to a tree, cut their gut open and expose their intestines and wait for the wild pigs to come up the trail and eat them alive.  Chomp, chomp, chomp.

 

Fuck yea.

Last of the Middle Class's picture

No there's a fucking genius for you. Saddled the next 3 or 4 generations with unpayable debt and he comes up with a new plan. LMFAO

Money_for_Nothing's picture

Remember in the Godfather movie when the helicopter shot up the penthouse party. Japan will quit QE when that happens at a G20 meeting.

Iconoclast421's picture

In other words, they are coming up with another new name for money printing.