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Kuroda's 'Do Whatever It Takes' Pledge Is Less Credible Than Draghi's

Adam Whitehead profile picture
Adam Whitehead


  • QQE has failed to deliver acceptable growth and inflation for the BOJ.
  • The BOJ re-affirms the centrality of its commitment to QQE even though QQE has failed to deliver acceptable growth and inflation.
  • The BOJ has submitted its time consistency for the market to test its commitment credibility.
  • The BOJ is simply rationing emergency liquidity injections across different sectors of the Japanese economy on a rotating basis.
  • The rising potential growth curve and widening output gap story (“virtuous circle”) is ineffective and needs to be changed.

The developed central banks have entered a delicate phase in their Prisoner’s Dilemma. All have faced the classic commitment problem, of their inability to achieve their goals of economic growth and above target inflation with unconventional monetary policy, in varying degrees.

The signs are that the Fed may have fleetingly achieved the solution to the problem just before President Trump provided it with a global growth problem. The ECB is somewhat behind the Fed, which means that it now risks not achieving the solutions to its problems before the next economic slowdown becomes its priority.

The BOJ seems never to have been able to find the solutions to growth and inflation. It is therefore interesting to see that it has bravely chosen to re-affirm its commitment to solve this problem, when the evidence suggest that it is as far away as it has always been.

When faced with a similar situation to the BOJ, Mario Draghi affirmed the ECB’s commitment, by saying that he would “do whatever it takes”. Draghi however followed through and was thus deemed credibly committed. The BOJ on the other hand has just said that it will do whatever it takes, but then done nothing substantial. In lieu of doing anything substantial it has simply mitigated the negative consequences, for those economic agents in the Japanese economy which are suffering from QQE. The BOJ has only pledged an unlimited time commitment to achieve its inflation. The credibility of this time commitment will now be put to the test.

The BOJ continues to play cat and mouse with its guidance about the potential for further monetary policy expansion or not. The central bank’s recent quarterly assessment of the regions exudes what the BOJ often refers to as the “virtuous circle”. Consistent with said circle, the regions and

This article was written by

Adam Whitehead profile picture
Over thirty years of taking the volatility out of uncertainty, by taking the uncertainty out of volatility, for proprietary trading desks, commodity trading advisors, sovereign wealth funds and private offices.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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