7 Nov 2013
Flash: Reliance on QE by BoJ to end badly - Nomura
FXstreet.com (Barcelona) - Further reliance by the Bank of Japan on monetary easing would have only negative impact in the economy, notes Richard Koo, Chief Economist at Nomura Research.
Key Quotes
"Once domestic institutional investors realize that quantitative easing alone cannot generate inflation without support from the second and third arrows, I think further easing will be of questionable benefit and should be reconsidered."
"There is no reason why additional easing should bring about any improvement in the situation once investors recognize this. Moreover, the authorities will face the QE “trap” I discussed in the last two issues of this report as soon as the private sector resumes borrowing. The greater the extent of quantitative easing, the larger the trap."
"The excess reserves that have been released into the market now amount to 9.7 times the value of statutory reserves in Japan’s banking system, roughly the same as the corresponding ratio for the UK (10.3x) and about half that of the US (19.5x). In any case, I think it is more than enough to trigger a QE “trap.”
"In this sense as well, further dependence on the first arrow of monetary easing should be avoided because it will have a minimal positive effect in the short run while having a huge negative effect in the long run."
Key Quotes
"Once domestic institutional investors realize that quantitative easing alone cannot generate inflation without support from the second and third arrows, I think further easing will be of questionable benefit and should be reconsidered."
"There is no reason why additional easing should bring about any improvement in the situation once investors recognize this. Moreover, the authorities will face the QE “trap” I discussed in the last two issues of this report as soon as the private sector resumes borrowing. The greater the extent of quantitative easing, the larger the trap."
"The excess reserves that have been released into the market now amount to 9.7 times the value of statutory reserves in Japan’s banking system, roughly the same as the corresponding ratio for the UK (10.3x) and about half that of the US (19.5x). In any case, I think it is more than enough to trigger a QE “trap.”
"In this sense as well, further dependence on the first arrow of monetary easing should be avoided because it will have a minimal positive effect in the short run while having a huge negative effect in the long run."