28 May 2014
The time has come to end QE in Japan - Nomura
FXStreet (Bali) - Richard Koo, chief economist at Nomura Research Institute, thinks that now is the time to end QE in Japan if the BoJ wants to minimize market disruptions.
Key Quotes
"Bond market impact of QE trap could be even more severe in Japan With Japan headed towards the same QE trap the US is now experiencing, we should welcome the fact that some reporters are starting to worry about the substantial risks that entails."
"Whereas the Fed’s QE created excess reserves equal to 20.1 times statutory reserves, Japan currently stands at a multiple of 13.9. But they face exactly the same problem: Japan’s private sector (households + nonfinancial corporations + financial institutions) is saving an amount equal to 7.8% of GDP a year (four-quarter moving average) in spite of zero interest rates, a figure identical to that of the US private sector."
"The multiple of excess to statutory reserves in Japan will rise to 18.7 from 13.9 if things continue along the present path. As Japan’s fiscal deficits and national debt as a percentage of GDP are both far larger than those of the US, the deterioration in bond market conditions when the securities held by the BOJ reach maturity could be far more severe than in the US."
"In that sense, I think now is the time to end QE in Japan as well. Governor Kuroda, however, continues to declare he will keep QE in place until the inflation rate hits 2%."
Key Quotes
"Bond market impact of QE trap could be even more severe in Japan With Japan headed towards the same QE trap the US is now experiencing, we should welcome the fact that some reporters are starting to worry about the substantial risks that entails."
"Whereas the Fed’s QE created excess reserves equal to 20.1 times statutory reserves, Japan currently stands at a multiple of 13.9. But they face exactly the same problem: Japan’s private sector (households + nonfinancial corporations + financial institutions) is saving an amount equal to 7.8% of GDP a year (four-quarter moving average) in spite of zero interest rates, a figure identical to that of the US private sector."
"The multiple of excess to statutory reserves in Japan will rise to 18.7 from 13.9 if things continue along the present path. As Japan’s fiscal deficits and national debt as a percentage of GDP are both far larger than those of the US, the deterioration in bond market conditions when the securities held by the BOJ reach maturity could be far more severe than in the US."
"In that sense, I think now is the time to end QE in Japan as well. Governor Kuroda, however, continues to declare he will keep QE in place until the inflation rate hits 2%."