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Japanese QE – Epic Fail

By Chris Lowe, Editor-at-Large on March 17, 2015

You’ve got to love the Japanese…

No amount of evidence to the contrary will dissuade them from their belief in the power of QE to fix all that ails their economy.

After its latest policy meeting, the Bank of Japan announced it would hold steady on its $1.4 trillion QE program.

BoJ governor Haruhiko Kuroda said he was intent on raising consumer prices by a rate of 2% a year despite the fact that, so far, prices continue to fall in Japan under his program.

The BoJ blamed falling energy prices for Japan’s zero percent inflation rate. According to its post-meeting press statement: 

Annual consumer inflation is seen moving around zero percent for the time being on declines in energy prices. 

What the central bank failed to mention was that it’s been two years since it embarked on its recent QE program… and its main inflation gauge has slowed to just one-tenth of its 2% target.

And it’s now been 14 years since the BoJ launched its first round of QE to combat the deflationary effects of the bursting of its real estate and stock market bubbles at the end of the 1990s.

Although QE has failed to lift inflation in Japan, it has coincided with a much weaker yen… which just hit an eight-year low versus the dollar.

This is putting a squeeze on margins at many Japanese companies.

A weaker yen is driving up imported raw materials against a backdrop of domestic deflation. So Japanese companies can’t pass on higher costs to their customers.

Nevertheless, the BoJ has promised to banish deflation. And that’s what it will continue to try to do regardless of the unintended consequences.

Expect more aggressive easing… and an even weaker yen… in the future.

P.S. As Bill writes in his new book, Hormegeddon, public policy disasters like the one brewing in Japan “can’t be stopped by well-informed smart people with good intentions because those exact people are the ones who cause these disasters in the first place.” Pick up your FREE copy of Hormegeddon here. (All we ask is that you cover the shipping cost.)

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