the New Deal of the Bank of Japan carries a large risk

The new Central Bank President Haruhiko Kuroda April 4 introduced a content-rich, concise new policy quickly and clearly unhappy in the long-term situation of the Bank of Japan who marked the rich color of his personal imprint. Its Renbai Chuan Fang Ming acting style are different, the latter prefer progressive measures, and the time stressed the complexity and risk of the policy.

Kuroda in interpreting the announcement of the New Deal package focusing circle the number "2": central bank bond purchases and the monetary base expanded to the current level twice, in two years time "2%" inflation target.

This is an extremely bold promise, many economists and government officials, including Chancellor of the Exchequer, including Japan are of the view that, in Japan, such a deflation nightmare entangled the country in 15 years to complete the task almost impossible. In today's world, Japan is the only major economies experienced after the era of the "Great Depression" long deflationary vicious circle.


Deal with a lot of risk, for example, may cause prices grew faster than wage growth, a new financial bubble or a huge government bond market crash.

Kuroda convey new information to the market is one of the Bank of Japan image transformation project. Under the leadership of former Renbai Chuan Fang Ming, the Bank of Japan to avoid risks, carefully detailing the advantages and disadvantages of analysis of policies feasibility famous. Critics believe that this act means timid, and the public confused.

Kuroda led by the Bank of Japan is not only more daring in terms of policy, skills policy message has been improved. Policy statement of the bank said it expects the new policy will not only play a role in the transmission mechanism through interest rates, asset prices, will significantly change market expectations.

Traders said the new treasury bonds to buy scale and, for the first time to set the goal to expand the monetary base something of a surprise. The Bank of Japan said it would strive to expansion of the monetary base doubled in two years.

Mizuho Corporate Bank's senior dealer Dai Sato said if the criteria of the New Deal of the Bank of Japan is of 1 to 100, he would have hit 100 points, or 120 points. He said that in terms of the various aspects of the New Deal are beyond their expectations.

Bank of Japan for the first time to achieve the inflation target set an official deadline (about two years), responded to criticism outside of the goal of the lack of maturity of no practical significance. The bank said, will be implemented through a combination of the U.S. Federal Reserve Board and other central banks "quantitative easing" and "qualitative easing" to achieve these goals.

Quantify the Bank of Japan said it would speed of up to 70 trillion yen (about $ 730 billion) to expand the monetary base, until you achieve the inflation target of 2%.

Qualitative aspects of the Bank of Japan said it would change long-standing position to avoid the purchase of long-term securities, long-term securities easier devaluation losses occur in the future, so that the line has been to avoid the purchase of such securities. The latest policy statement, the Bank of Japan said it will buy a maximum period of 40-year Japanese government bonds, in order to guide the long-term interest rates lower. This will enable the central bank to Japanese government bonds held by the average duration of less than three years from the current extended to about seven years.

The Bank of Japan will also increase the amount of the purchase of financial instruments related to the stock market and real estate market, to boost the stock and real estate prices, and to encourage other investors to buy these products.

But the New Deal also very risky. The Bank of Japan's bond-buying program aimed at artificially low rate of return, in particular, is still at a relatively high long-term yields. The decline in long-term yields will encourage investors (many banks and other financial companies) the money to invest in stocks, real estate or loans and other products, in order to stimulate a wider range of economic activities and investment. Debt purchase plan will promote the long-term interest rates lower, in order to encourage consumer and business loans or consumer.

The full boost market practice may lead to the growth of certain sectors of the economy much faster than other areas. Wage increases speed may not keep up with the speed of price increases, this phenomenon is the Japanese call "bad" inflation.

Japanese exporters welcomed the weaker yen, overseas sales more profitable because it makes to help Japanese products more competitive in overseas markets. Excessive monetary easing may cause the yen fell to dangerous levels, so that imports of fuel, commodities and other rising costs. Cash flood flooding may also lead to bonds, stocks and land prices soared.