Bank of Japan Goes to Infinity and Beyond
The new head of the Bank of Japan made his mark on the markets with his first pronouncement last night.Â Skipping the particulars, which if you are truly interested you can read them here, the BoJ is committed to doubling the size of its balance sheet over the next 20 months adding Â¥7 trillion per month in longer maturity JGBs, J-REIT and other assorted paper.Â That’s the great thing about paper, its like DNA, it not only transmits information it self-replicates.Â the problem, of course, is that the information carried on the copies is inferior to that of the original and eventually the message becomes so garbled no one on Earth can read it.
The market was expecting just Â¥5 trillion per month but Kuroda and the Abe government believed that was too timid to create the 2% inflation that they feel is necessary to destroy what is left of the Japanese economy.Â At the same time the ECB held rates constant and president Mario Draghi reiterated that the ECB stands committed to the Euro project and that nothing has changed in light of Cyprus.Â There is no ‘plan B’ as it were because the Euro is like the monetary equivalent of Hotel California or a Roach Motel.
Actually I like the second metaphor a whole lot better once you realize that the first ones in run the place.
This added Yen liquidity will be used to windows dress the U.S. Dollar further as demand for it continues to wane.Â In response gold and silver were hit again but the $1525 to 1550 zone continues to hold in the face of massive attempts to break the price.
Tom is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.
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