http://blogs.wsj.com/marketbeat/2010/10/05/boj-surprise-sends-yen-tumbling/
Why would Japan do this? Just to help protect the US dollar?
Why would the Japanese government hurt their own economy to help the US?
They do it to “increase exports” to “help the economy”.
If you look at the indebtedness of governments and the interest rates set by their central banks, you find a correlation. Low interest rates at the central bank → easier to finance government debt. Of the G20 nations, Canada is among the lowest in terms of government debt to other nations, and they were the first to start increasing the interest rate. It’s anecdotal, but one cannot forget that cheap money makes government debt financing easier.
Because Keynesian economics of easy money and lots of govenrment spending has failed to stimulate anything for 20 YEARS and given the history of Japan after WW2, the Government-Banking Complex there has gone back to their old Mercantilist policies that created the boom of the 1980s and subsequent bust of the 1990s. The idea is to set in motion another bubble that they will magically time and stop just at the moment the economy crashes again. I wonder what the stock market index will rise to this time: 20000, 40000, 100000 just before the bust.
Because the old than Keynesian economic system of Mercantilism which is temporary at best and destructive at worst is more politically palletable than using the Rothbard prescription that is guaranteed to work but is too harsh for the people of Japan.
I wouldn’t call having a good economy harsh.
I would. The banking - government complex of Japan has intervened so much in the past 20 years that production and consumer demand are complete out of wack and the same complex is now just devaluing their currency at huge detrement to their own currency holders hoping to complete for consumers in other parts of the world.
So the Japanese are going to have to experience harsh conditions for some length of time as they bring all of production including employment back in line with consumer demands both external and internal. To make matters worse, more harsh, for the Japanese people, they still have a culture of lifetime employment in most industries. The work required to rid themselves of this practice is so great that they were willing to sacrifice the economic growth of generation to avoid it when they went on their Keynesian experiment.
You make it sound like interventionism improves the quality of life.
I probably do make it sound like interventions improve something in exactly the same way the band playing on the deck of the Titanic improved the environment for the passengers.
If you mean by the analogy that some benefit at the expense of others that are offended by the music.
the Government-Banking Complex there has gone back to their old Mercantilist policies that created the boom of the 1980s and subsequent bust of the 1990s. The idea is to set in motion another bubble that they will magically time and stop just at the moment the economy crashes again.
I wouldn’t say it’s about inciting another Bubble, Bogart. There’s no way the decision was anywhere near that forward looking. It’s about the government protecting what it thinks it has (the export sector that’s the last crutch of the economy). Furthermore, the halflife of BOJ monetary interventions is down to 3 hours:
And as to the interest rate slash, that won’t help them in the long run. The other countries won’t let them get far ahead in the debasement race for very long, I’m very interested to see how long it takes before deflation sets in again and negates the interest rate reduction. They’re just consuming their capital even faster now.
Is it safe to say that this will cause a bubble, though (no matter whether it was purposeful)?
bump
You got it right folks: Japan is trying to devalue the yen relatively to the US dollar without using massive “quantitative easing”.
The keiretsu have asked for years to “do something” about the strength of the yen relative to the US dollar since it’s hurting their business in one of their most profitable markets. Since massive inflation is out of the question they resort to other means. It also helps selling bonds: lower rates means banks will be even more unwilling to offer savers good returns for their deposits, meaning the “captive domestic market” for bonds will stay in place.
It will just provide Japanese exporters with temporary relief: a US dollar mini-rally had already been predicted for November so this is just part of something analysts were expecting. But that’s exactly what the present business world expects: temporary measures to provide temporary relief. Think of it as a “kick the can” attitude on giant scale.