The Bank of Japan Is Out of Options

Monetization has begun.
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Canary in a Coal Mine

JACKSON HOLE, Wyo. -- Robert Feldman of

Morgan Stanley

reckons that, along with indicators such as the monetary base (the sum of currency and reserves) and expanded base money (the sum of the monetary base and bills issued), market participants can get a good feel for whether or not the

Bank of Japan

is serious about easier monetary policy by looking at its balance-sheet growth.

And the latest

figures hardly speak to seriousness.

The pace of BOJ balance-sheet growth has decelerated from almost 40% six months ago to roughly 2% as of Feb. 20 (note that government securities account for 64.2% of BOJ assets). The

pace of money-supply growth, meanwhile, has decelerated from 4.3% in November to 3.6% in January.

That these numbers are still moving in the wrong direction is bad enough. Worse still, they are doing so against a backdrop of (a) a

policy rate that has already been reduced to nearly nil and (b) an

Economic Planning Agency

chief who proposes raising the consumption tax -- the same one that, when jacked to 5% from 3% in April 1997, pulled the plug on the economy -- by a full percentage point (to 6%).

And then again, as

Fuller

noted, it is always darkest just before the day dawneth.

Japanese policymakers have now come to understand that they are just plain out of options, and it looks like monetization

has begun.

Sources point out to this column that embryonic evidence of such will soon translate into bigger money-supply and balance-sheet numbers -- and that the time to act is now, before they do.

These rumblings come right on the heels of pro-Japan comments from Deputy Treasury Secretary

Summers

-- comments your correspondent would normally be the first to dismiss, but which this time are tough to ignore in light of their marginally heightened serious-soundingness and especially their timing.

If the monetary authorities have indeed begun to act, the forward-looking investor will want to book passage on the northbound dollar-yen train now, before the numbers begin to show it. The same investor will want to act to take advantage of the fact that, under the monetization scenario, Japanese long rates are sentenced to rise materially.

And sure, participants have already killed scores of canaries by tossing them into the noxious pit that is the

Nikkei

.

But the latest bird to be offered finally finds the air breathable.

This Tweety lives.

Side Dish

Recommend the Mark Steyn piece on the

Journal

editorial page today.

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