BoJ’s Kuroda’s Opening Salvo: 7 trillion yen ($74 billion) of Bond Purchases a Month

In pursuit of Shinzo Abe’s parlous economic policies popularly known as Abenomics, Bank of Japan’s new chief, former ADB head Haruhiko Kuroda’s began his term with a baptism of fire.

From the Bloomberg;

Bank of Japan (8301) Governor Haruhiko Kuroda began his campaign to end 15 years of deflation by doubling monthly bond purchases in a bid to reach 2 percent inflation in two years.

With Kuroda presiding over his first meeting since taking the helm last month, the board today streamlined its asset purchase programs, temporarily suspended a cap on some bond holdings and dropped a limit on debt maturities. The BOJ will buy 7 trillion yen ($74 billion) of bonds a month, the central bank said in a statement.

Be careful what you wish for. 

This applies to Abenomics whose scale of purchases is just $11 billion short of the $85 billion a month equivalent by the US Federal Reserve

While Abenomics may create a short term boom, this will be equivalent to an economic Hara-Kiri in the fullness of time as Abenomics magnifies the risks of a debt, or if not a currency crisis.

The worst is that the BoJ’s inflationism amplifies the risks of war.

As I pointed out in the past this hasn’t been about the strong yen (or deflation), which Japanese officials use as smokescreen, but “about saving the banks and financial institutions who constitutes as the major financiers or creditors or owners of Japan’s Government Bonds (JGBs)”

Nonetheless the aggressive deployment of asset purchasing will bring BoJ’s balance sheet to the levels of her western counterparts.

As fund manager Axel Merk of Merk Investment warned,

BOJ governor Kuroda will unveil which tools from his toolbox he may deploy. We refer to it as monetary madness because we don’t see how this can have a good ending for Japan, the yen, or the world. Japan has a $6 trillion economy, more than 200 times that of Cyprus. Should the market express its discomfort with Japan’s policies, there will be ripple effects to global markets. For now, the most direct implication is that we are rather negative on the yen. But don’t kid yourself: there may not be a place to hide, there may not be such a thing anymore as a safe asset. We have long argued that investors may want to take a diversified approach to something as mundane as cash.

Given precarious Japan’s debt position, Mr. Kuroda’s embrace of “Abenomics” is like playing with fire...where everyone gets burned.