The solution for these two problems by the BoJ was to lower interest rates all the way down to about zero. The net result? Continued depreciation and continued slow growth.
That got me wondering.....
The carry trade is said to be at around $1 trillion that the world knows about (perhaps another $1 trillion that we don't). That means that $1 trillion dollars have moved out of Japan in the form of borrowing from Japanese banks, and transfered out into other parts of the world and deposited earning higher interest rates.
What would happen to Japan's economy if $1 trillion dollars were to all of a sudden show back up in Japan? Talk about liquidity. In fact, there would be so much money sloshing around, the Bank would have a hard time controlling these assets. You want to see inflation? Throw money at citizens like it's growing on trees. You want to see growth? Put suitcases of cash outside the bank's doors for businesses to walk by and pick up if needed. And, the yen would rise in response to this move.
I have been thinking for some time that the policies of the BoJ have been perpetuating the situation, not solving them. The fix would be to turn their "fix" off.