Is the Fed Blindly Following Failed Policies of the Bank of Japan?
BOJ vs Fed Comparison Criteria
- No Upper Limit
- Commitment to Overshoot
- Buy ETFs
- Unlimited Time Frame (Until it Works)
Bank of Japan Actions
- January 21, 2021 Monetary Policy Statement: The Bank will purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit so that 10-year JGB yields will remain at around zero percent.
- October 29, 2020 Monetary Policy Statement: The Bank will purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit so that 10-year JGB yields will remain at around zero percent.
- April 27, 2020: Bank of Japan vows to buy government bonds 'without upper limit'
- July 7, 2017: Bank of Japan offers to buy unlimited amount of bonds to calm markets
- October 2016: The Bank Of Japan Breaks New Ground Yet Again--And It May Work This Time
- The BOJ has been buying ETFs for a decade as part of efforts to drag the world's third-biggest economy out of deflation. Its policy at the moment is to buy ETFs at an average annual pace of roughly 6 trillion yen, a commitment that forces it to keep buying even when stocks are booming.
The table of contents for the October 2016 article is interesting.
Oct 2016 Table of Contents
- Doubling Down, Not Throwing in the Towel
- Making Sense of the New Framework
- Quantity and Price: Is the BOJ Trying to Have Its Cake and Eat It Too?
- An Exit Strategy Could Be in the Making
- Commitment to Overshoot Inflation Target
- Where the BOJ Goes, Others Tend to Follow
Exit Strategy, Making Sense, May Work?!
What a hoot.
The rest could hardly be more prophetic especially the final bullet point.
Spotlight on Bank of Japan's Yield Curve Control
Please consider Global Bond Rout Puts BOJ's Yield Curve Control in Spotlight.
The Bank of Japan’s success in controlling the shape of the bond market’s yield curve could tempt other central banks to consider deploying similar tactics as they grapple with a rise in borrowing costs that could cripple their economies.
The Japanese central bank has kept bond yields largely pinned inside a narrow range around 0%, since it adopted its yield curve control (YCC) policy in 2016.
The merits of the policy are clear. By shifting to targeting yields, the BOJ could buy fewer bonds than under its massive bond-buying programme many analysts saw as unsustainable.
The Bank of Japan has indeed controlled the shape of the yield curve. But where is the success?
Japan has struggled with recessions and deflation for over a decade. The BOJ's strategy is hardly a success given inflation targeting is the primary reason for its monetary madness.
Moreover, the the final paragraph in the above article is flat out wrong. The BOJ does not buy fewer bonds, it has to buy unlimited bonds "without setting an upper limit so that 10-year JGB yields will remain at around zero percent."
Fed Doubles Down, Commits to Overshoot
The Fed is indeed following the failed footsteps of Japan.
It is doubling down, has committed to overshoot, and has no exit strategy.
- March 4, 2021: Powell Confirms Easy Money Until the Cows Come Home
- February 24, 2021: Powell Disses Inflation and Ignores Questions From Congress About Leverage
- March 17, 2021: Fed Commits to "Full Range of Tools" Seeks Inflation Above 2% "For Some Time"
Key Snips From Link 3 above, Fed's Latest Meeting
- Full Range of Tools: The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time.
- Commitment to Overshoot: Inflation continues to run below 2 percent. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time.
- No Time Commitment: The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.
What About ETFs?
The only policy action missing is equity ETF buying, but the Fed is on that path too, but with junk bonds for now.
Please recall my June 15, 2020 post Fed's New Facility Will Buy Junk Bonds With 7-1 Leverage
In due time the Fed is certain to use its "Full Range of Tools" as well as invent new ones. The Fed's purchase of junk bonds (a new tool) is not even legal due to insufficient collateral.
Full Speed Ahead
Bubbles be damned. Full speed ahead with the stimulus in search of inflation that would be visible to anyone who was not wearing groupthink blinders.
In addition to having no vision, Powell cannot hear questions.
Meanwhile, bubbles in equities and junk bonds keep getting bigger and bigger.