“Has the BoJ signalled the end of QE as we know it?”

That’s what David Keohane asks in yesterday’s FT Alphaville based on recent Citi and Goldman research notes.

Citi’s Buiter:

“In some ways, it is startling that the BoJ, while admitting that inflation rates have weakened (even though still forecast to reach the target in 2019), left the policy rate unchanged and picked the new 10-year yield target around current levels. Today’s decision therefore does not imply any further easing.”

The BOJ’s unexpected new approach is probably a stopgap solution to three prickly problems;

  • They’ve become way too dominant in the JGB market.
  • The flattening of the yield curve and negative short rates are playing hell with bank profitability, and that of the financial system more generally.
  • What they’ve been doing isn’t working.

Even assuming steepening the yield curve might do some good and is practically possible, the attempt will bring a new bunch of problems in its wake. Continue reading ““Has the BoJ signalled the end of QE as we know it?””


It ain’t getting easier for central bankers . . .

Doubts about post-crisis monetary policy are finding their way into the mainstream with increasing regularity. What tipped the balance? Two main things, I think.

First, it’s getting tough to argue that it’s working. After eight long years central banks are still mollycoddling their fragile economies and overall indebtedness keeps on growing. Second, faced with this puzzle, rather than re-examine their premises central banks have tended to double down with policies like NIRP, extending QE to corporate bonds and equities as well as canvassing even more radical moves like banning cash and cranking up the helicopters.

None of it’s a good look. Happily, scrutiny of these various idiocies is becoming ever more common.

Central banks and their intellectual handmaidens have owned this conversation for a long time. The weakness of their underlying rationale went mostly unexamined because of the deeply embedded belief that they had a handle on things. Until very recently, the internal contradictions and lack of an endgame never seemed to be considered, except by a heterodox fringe.

So what are these internal contradictions? Continue reading “It ain’t getting easier for central bankers . . .”