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Bank of Japan
Bashing
by
Henry C.K. Liu
This article appeared in AToL
on April 17, 2013
It is a puzzle why the Soros-funded Institute of
New Economics Thinking (INET)
chose to hold its 2013 annual conference in April in Hong
Kong,
the favorite pet of market fundamentalists such as the late Milton
Friedman
whose free market theology has been summarily discredited by disastrous
unfolding
events in an unregulated globalized financial market since 2007.
(Please see my
AToL May 2003 series on Hong Kong)
While Hong Kong is the last place on earth one
can expect to
find new economics thinking of any kind, especially when the conference
was
co-sponsored by a local billionaire who made his fortune from global
outsourcing through cross-border wage arbitrage while the sordid game
was
lucrative, backed by financing from transnational US institution,
Prudential
Financial, a game that has adversely affected the lives of workers in
all
trading countries, it is even more puzzling why lead speakers at the
conference,
such as Jonathan Adair Turner, seconded by aspiring global reformist
citizen
George Soros, found it necessary to hit the Bank of Japan (BoJ) hard.
Lord Turner, Baron of Ecchinswell (created
September 7,
2005), is a British businessman,
academic, liberal technocrat,
member of the UK Financial Policy Committee, Chairman of the UK Financial Services
Authority (until
its abolition in March 2013 after having served as cheerleader for Big
Bang
deregulation of London's financial markets that serve the whole world),
former
vice-chairman of Merrill Lynch Europe and a non-executive director of
Standard
Chartered Bank, and one of the leading proponents of British membership
of the
euro - a stance he later said was mistaken.
In 2009, Lord Turner famously said that a lot of
banking
activity was “socially useless” and as Chairman of the FSA, with only
two weeks
in office, infamously used his regulatory authority to nix the proposal
by
Britain's Barclay Bank to bailout fatally impaired US investment
banking giant
Lehman Brothers to push it into filing Chapter 11 bankruptcy protection
in the
US on September 15, 2008, the morning after the FSA decision, causing
massive destructive
financial chain reactions around the world, wiping out along the way
small life
savings of widows and trust funds of orphans. Banks may be socially
useless,
but they are certainly not socially benign.
The BoJ does not deserve such harsh criticism
from people of
such dubious record. Under new governor Haruhiko Kuroda, BoJ is the
only
central bank among G7 governments taking a sensible Keynesian monetary
policy
to deal with protracted deflationary recession to help the segment of
the population
most hurt by the still-unfolding global financial crisis. An inflation
policy
by the central bank in a deflatonary financial crisis helps a large
segment of
the population who have put their life savings in fixed income assets
traditionally recommended to them for alleged security and in the
market value
of their homes, often the largest asset owned by an average family.
Kuroda has been a strong advocate of loose
monetary policy
in Japan
to
relieve the Japanese economy of needless financial pain suffered by the
helpless
general public. His
February 2013 nomination by the incoming restructuring-minded
government of
Shinzo Abe had been preordained. Nominated at the same time as Kuroda's
two key
deputies were Kikuo Iwata, known widely as "a harsh critic of past BoJ
policies", and Hiroshi Nakaso, a senior BoJ official in charge of
international economic and monetary affairs,. The previous BoJ
governor,
Masaaki Shirakawa left in March 2013.
“There is plenty of room for monetary easing" in
the Japanese
economy, Kuroda said in a February 2013 interview, adding that the BoJ
could go
beyond purchasing government bonds to include corporate bonds "or even
stocks" to perform the role of market maker in stalled markets. The
unorthodox
remark sent cold shivers down the whole spine of the global central
banking
snake. How can a central banker not accept the golden rule that the
people must
suffer austerity for the miscalculations of monetary policymakers?
The yen, which has fallen 10% against the dollar
since Abe
began his election campaign in November, 2012, fell further on the news
of
Kuroda's nomination in February 2013. However,
the new governor is "expected to
use his experience as Japan’s top currency official until 2003 to rebut
foreign
criticism that Japan was using easy monetary policy to drive the yen
lower,
triggering a war of competitive currency devaluation."
When
the new Central Banker was asked about the same accusation in the press
conference at his assumption of office of BoJ Governor on March 21,
Kuroda danced
around the pointed question by noting that BoJ's role is to stabilize
falling prices,
and stabilizing exchange rate is role of the Finance Ministry. The
unspoken
message was that Japan
is not doing anything that other governments are not doing.
Kuroda, having assumed the BoJ position in late
March 2013,
immediately launched a discussion on bond buying with a two-year target
of 2%
inflation policy as goals to deal with a deflationary recession.
As the dollar toyed with ¥100 in currency
markets by end of March, 2013, Japan’s
Finance Minister Taro Aso hinted on April 9 that Japanese policymakers
are
unlikely to seek to slow the pace of the yen’s decline. Minister Aso
said the yen
was merely correcting after a period of government-supported excessive
strength
in currency markets.
The yen on April 8 had hit its lowest level
against the
dollar since April 2009, after the BoJ made its first government-bond
purchase
since announcing the policy a week before that it would add some 140
trillion
yen ($1.4 trillion) to the economy over the next two years as it seeks
to moderate
or end deflation.
The Nikkei jumped to close above 13,500 on April
11, first time in 5 years. The
smart money expects the Nikkei to rise 40% to 14,500 in 2013 with the
yen
sliding 18% against the dollar to close around 102. Parity with the
dollar is
very likely. The yen last traded at 99.73 to the dollar on April
11,while it
hit 99.88 yen to a dollar.
The rise in Japanese equity markets have also
been helped by
data supportive of a recovery in the Chinese economy - notably signs of
growing
domestic demand and easier credit.
Data out on Thursday, April 11, showed Chinese
banks made
1.06 trillion yuan ($171.2 billion) of new, local currency loans in
March;
trade figures on Wednesday showed a sharp rise in imports. The Japanese
market
is also helped by indications from the European central Bank in the
first week
of April that it is considering a further rate cut in euro loans.
Reports on Cyprus Central Bank selling its gold
reserves drove
gold prices down, which the market saw as the beginning of collapse of
the gold
bubble. I will have a piece on that in Asia Times in a few days. But a
gold bubble
collapse engineered by central bank action is not the big news.
The big news will be the euro being saved from
disintegration by Germany,
but at a discounted exchange rate that will serve German national
interest of
having a cheap currency to boost German export outside of the eurozone,
mostly
to China.
Germany
will be soaking up the wealth created by a common currency in the
eurozone through
the portion of its trade outside of the euro zone denominated in a
cheap euro.
It is a direct transfer of wealth to Germany
from those eurozone countries which have been forced to adopt austerity
programs
to stay with the euro and in the eurozone. The world is waiting for
Europeans
to realize its time for a political response to the sovereeign debt
crisis by driving
neoliberal monetarists into the sea to drown, instead of dumping
surplus grain
to keep food prices up.
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