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Global Top Cat

Japan: Inflated Expectations

By Yiannis G. Mostrous, on Apr. 2, 2014

Two weeks ago, Koichi Hamada, retired Yale economic professor and Prime Minister Shinzō Abe’s special economic adviser, told reporters that the Bank of Japan should increase its annual bond purchases to JPY100 trillion (US$985) from JPY50 trillion.

Hamada also suggested that Japan’s central bank buy 100 percent of the bonds issues by the Japanese government.

The local press reports that the Bank of Japan will take a wait-and-see approach to additional quantitative easing, delaying any change in policy until August 2014, when economic data become available for the second quarter.

However, Hamada’s public comments on the situation indicate that the Bank of Japan likely will ramp up its bond purchases. The prime minister’s special economic adviser also stated that the modest increase in Japan’s gross domestic product (GDP) over the final three months of 2013 suggests that additional stimulus will be needed to offset a 3 percentage-point tax increase.

In short, all signs point toward more intervention from the Bank of Japan and a weaker yen–a situation that has appealed to foreign investors in the past. And as one of the world’s largest net foreign creditors, Japan will benefit from a weaker yen.

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