Two years after Paul Krugman sat down with Abe to tell him how to run monetary (and to a lesser extent fiscal) policy, Abenomics lies crushed in a steaming pile of discredited Keynesian economics, with the "deflation monster" once again ruling the land, wages have failed to sustain any material move higher, the economy finds itself in yet another pre-recessionary slump, and most importantly, the Nikkei has plunged 25% from recent highs as a result of the surge in the Yen driven by the complete collapse in BOJ credibility - which is now a ward of the G-7 and is not allowed to make any independent monetary decisions without US Treasury preapproval - which has pushed Japan's currency back to levels higher than when Krugman made his visit.
So what is Japan to do facing what may be an economic dead-end? Why even more of the same, and just to make sure Japan does not deviate from the monetary course of righteousness, this time not Krugman but the godfather of everything that is wrong with modern monetary policy, Ben Bernanke, will make sure of it.
But first, to give the impression that Japan's decisionmaking process is still "independent", officials from the Ministry of Finance, Financial Services Agency and the Bank of Japan will meet Friday at 9:30 a.m. to exchange views including on how the government should respond to the yen's appreciation, Reuters reports.
The last time they met was on June 25, shortly after Britain voted to leave the European Union, a decision that jolted financial markets and boosted investors' demand for the safe-haven yen. Since then the USDJPY has plunged by 600 pips, and was straddling 100, a key psychological level for the BOJ. In other words, the meeting was a failure.
So perhaps to assure that this time there are no "errors", none other than Citadel's most prominent employee, and the former Fed chairman himself, Ben Bernanke will make a casual visit to Japan, where he will meet with both Abe and the Bank of Japan governor, Haruhiko "Peter Pan" Kuroda. From Reuters:
Former Federal Reserve Chairman Ben Bernanke will have talks in Tokyo next week with officials including Prime Minister Shinzo Abe, government sources said.
Bernanke, who led the Fed through the global financial crisis in 2008, will be in Japan next week. It has been arranged for him to meet officials including Abe and Bank of Japan Governor Haruhiko Kuroda, according to a government official speaking on condition of anonymity.
Bernanke is expected to discuss Brexit and the BOJ's negative interest rate policy with Abe and Kuroda, the official said.
What may have prompted this unprecedented meeting between a "private citizen" (aka Brookings blogger and Citadel analyst) and a head of a central bank? Reuters specualtive conclusion is stunning:
Some market players speculate Kuroda might decide, in a surprise, to provide "helicopter money" - a term coined by American economist Milton Friedman and cited by Bernanke, before he became Fed chairman, when talking about how central banks might finance government budgets as a way to seek to fight deflation.
The BOJ governor has repeatedly denied that the BOJ would adopt such a policy, saying it is as an "impossible" option under current law separating the government's role in fiscal policy from the BOJ's in monetary policy.
To be sure, Kuroda lying on the record would not exactly be unprecedented: recall just one week before the BOJ unleashed NIRP what Kuroda said:
Followed, of course, by this:
So is it time? Is Bernanke about to unleash the next, and final, monetary policy evolutionary step, one which launches "helicopter money" in Japan, and if successful, brings it across the Pacific to the US?
We don't know, but if anyone is still holding on to USDJPY shorts, now may be a good time to quietly close them out, because if we are right, and a "helicopter money" is about to be served for the first time in modern history, things are about to get very volatile, very fast.