Here is our friend Ambrose Evans-Pritchard in the Daily Telegraph:
Japan’s incoming leader Shinzo Abe has vowed to ram through full-blown reflation policies to pull his country out of slump and drive down the yen, warning Japan’s central bank not to defy the will of the people.
…The profound shift in economic strategy by the world’s top creditor nation could prove a powerful tonic for the global economy, with stimulus leaking into bourses and bond markets – a variant of the “carry trade” earlier this decade but potentially on a larger scale.
…”It is tremendously important for global growth, and markets are starting to take note,” said Lars Christensen from Danske Bank.
Mr Abe’s Liberal Democratic Party (LDP) won a landslide victory on Sunday, securing a two-thirds “super-majority” in the Diet with allies that can override senate vetoes.
Armed with a crushing mandate, Mr Abe said he would “set a policy accord” with the Bank of Japan for a mandatory inflation target of 2pc, backed by “unlimited” monetary stimulus.
“Its very rare for monetary policy to be the focus of an election. We campaigned on the need to beat deflation, and our argument has won strong support. I hope the Bank of Japan accepts the results and takes an appropriate decision,” he said.
Mr Abe plans to empower an economic council to “spearhead” a shift in fiscal and monetary strategy, eviscerating the central bank’s independence.
The council is to set a 3pc growth target for nominal GDP, embracing a theory pushed by a small band of “market monetarists” around the world. “This is a big deal. There has been no nominal GDP growth in Japan for 15 years,” said Mr Christensen.
Did I just say that NGDP hasn’t grown for 15 years in Japan? Yes, I did…it is actually worse – Japanese nominal GDP is 10% lower today than in 1997.
The ECB is the only one of the major central banks in the world that is not at the moment taking decisive steps in the direction of getting out of the deflationary scenario. I hope we don’t have to wait 15 years for the ECB to do the right thing. The Japanese experience should be a major warning to European policy makers.
If you don’t think you can compare Europe today and Japan in 1997 then maybe you should should take a look at this post.
PS a friend of mine who once spent time at the BoJ is telling me not to get overly optimistic…
PPS Matt Yglesias also comments on Abe.
Previous posts on Japan:
Japan shows that QE works
Did Japan have a “productivity norm”?
There is no such thing as fiscal policy – and that goes for Japan as well
Friedman’s Japanese lessons for the ECB
The scary difference between the GDP deflator and CPI – the case of Japan