- Japan, 30 percentage points of GDP in monetary creation!
- All central banks are purchasing assets
- All of them? No.
In Japan the policy of Prime Minister Shinzo Abe sounds like … ABBA’s song. Through his impetus, the Bank of Japan is going to aggressively monetize public debt. After lifting its inflation target from 1% to 2%, the BoJ announced on 4 April its intention to more or less double the size of its balance sheet. It plans to spend JPY 132000 billion on net acquisitions of securities and a similar amount of monetary creation by late 2014. in other words, the equivalent of 28 percentage points of GDP. The Japanese programme would then be as substantial as the QE carried out in the United Kingdom and the United States, which is aimed at getting the central bank to hold 30% of the stock of government debt. The Bank of England has already met this goal, while the Federal Reserve in the United States is continuing to increase its purchases at a pace of USD 85 billion per month.
The ECB for its part ,does not get beyond the phase of promise for the moment, as its program of Outright Monetary Transactions (OMT) has not been activated yet. Nonetheless, a cut in the Refi rate could be decided on very soon, but other instruments are apparently under consideration. In the meantime, the flipside of the increase in central banks’ balance sheets is the ballooning of the M0 monetary base. At the beginning of 2013, the latest already totals close to 20% of GDP (Chart) - a record high which is unlikely to stand there.
BY Jean-Luc PROUTAT