We have to admit we found a point made by Nomura’s Richard Koo last month a little confusing. He argued quite persuasively that deflation is simply not a serious problem for the Japanese today.
JP Morgan’s chief Japan economist Masaaki Kanno weighed in on the rather odd dichotomy in the FT on Monday, arguing that:
The key to understanding the success of Abenomics is the asymmetric response between the currency and the bond markets, which can be attributable to divergent inflation expectations. In the currency market, inflationary expectations rose among investors, mostly non-Japanese, while on the other hand the JGB market remains dominated by Japanese investors, whose inflation expectations appear more or less unchanged.
Credit Suisse’s answer last week to the (rather odd) idea of the British government “cancelling” (restructuring) the gilts held by its central bank under quantitative easing…
From the bank’s credit analyst William Porter, it’s worth a read:
Any financial problem can be solved at a stroke if double-entry book-keeping can be ignored as a constraint. The problem is, it cannot. So debate in the private-sector financial community about “solutions” to the UK’s financial challenges based on ignoring it worry us. In the UK, Mervyn King has been quick to debunk the fallacies. But if they can exist even for a while in the very simple UK, then the infinitely more complex euro area (which we do not address in detail here) is fertile ground for solutions based on fallacious reasoning…
There’s something we’ve never quite got about this debate on “cancelling” all the government bonds acquired by central banks under quantitative easing, either for helicopter money or for debt relief.
Now the Governor of the Bank of England has weighed in: Read more