The Bank of Japan’s (BOJ) review of its monetary stimulus program promised for September has revived expectations it could adopt some form of “helicopter money,” printing money for government spending to spur inflation.
The bank on Friday disappointed market hopes that it might increase its heavy buying of government debt or lower already negative interest rates, cementing the view that it is running out of options within its existing policy framework to lift prices and end two decades of deflationary pressure.
With little to show for three years of massive monetary easing, economists say bank Governor Haruhiko Kuroda’s “comprehensive assessment” of policy could push it into closer cooperation with Japanese Prime Minister Shinzo Abe, who announced a fiscal spending package worth more than ￥28 trillion (US$275 billion) on Wednesday in a bid to kick-start growth.
“The comprehensive review might be the first step toward further collaboration with the government, hinting at helicopter money,” UBS Securities economist Daiju Aoki said.
“The government could issue 50-year bonds and if the BOJ makes a commitment to hold them for a very long time, that would be like helicopter money,” he said.
The helicopter money metaphor for the aggressive printing of new money was first used by US economist Milton Friedman in 1969 and cited by former US Federal Reserve chairman Ben Bernanke in 2002 as a scheme that could fight deflation.
However, some economists fear it could trigger hyperinflation and uncontrollable currency devaluation.
Speculation that Japan might take that path reached fever pitch earlier last month when Bernanke met Abe and Kuroda in Tokyo, though policymakers quickly tried to damp down such talk.
In the narrowest sense, a government can arrange a helicopter drop of cash by selling perpetual bonds, which never need to be repaid, directly to the central bank.
Economists do not expect this in Japan, but they do see a high chance of mission creep, with the BOJ perhaps committing to buy municipal bonds or debt issued by state-backed entities, giving its interventions more impact than in the treasury bond market, where it is buying ￥80 trillion a year of Japanese government bonds from financial institutions.
“Compared with government debt, these assets have low trading volume and low liquidity, so BOJ purchases stand a high chance of distorting these markets,” said Shinichi Fukuda, a professor of economics at Tokyo University. “Prices would have an upward bias, so even if the BOJ bought at market rates, this would be considered close to helicopter money.”
Other options include creating a special account at the BOJ that the government can always borrow from, committing to hold a certain percentage of outstanding government debt or buying corporate bonds, economists say.
With the BOJ’s annual Japanese government bond purchases already more than twice the volume of new debt issued by the government, Japan has already adopted something akin to helicopter money, said Etsuro Honda, a former special adviser to the Cabinet and a key architect of Abe’s reflationary economic policy.
Polytronics Technology Corp (聚鼎科技) yesterday announced that it is buying Henkel AG’s thermal clad dielectric material (TCLAD) business division for US$26 million as the Taiwanese firm aims to improve its technology, product portfolio and revenue performance. Polytronics, headquartered in the Hsinchu Science Park (新竹科學園區), is a supplier of protection components and heat dissipation materials. The firm entered the metallic heat-dissipation substrate market in 2007 and developed a unique solventless production process. Its board of directors approved signing an agreement with Henkel to acquire the German chemical firm’s TCLAD division in the US. The purchase includes all assets and business interests, including equipment,
SIZE MATTERS: Medium-sized hotels that do not have the support of parent groups are more vulnerable and are forced to take action, a REPro Knight Frank researcher said About 50 hotels across Taiwan are seeking to exit the market as they succumb to the bleak business outlook amid international travel restrictions imposed to combat the COVID-19 pandemic. Yomi Hotel (優美飯店) on Minsheng E Road, Sec 1, in Taipei is seeking to transfer ownership with an asking price of NT$950 million (US$32.15 million) and a pledge for a lease contract that guarantees a 3 percent return. The budget hotel, with room rates that start from NT$1,400 per night, maintains normal operations, but has been struggling since March, when the government placed restrictions on inbound and outbound travel. Occupancy rates for hotels in
With the US dollar expected to weaken in the next 12 months due to near-zero interest rates, investors should consider purchasing US corporate bonds, Standard Chartered Bank Taiwan Ltd (渣打台灣銀行) said on Thursday. The bank said that the US Federal Reserve since last month has been buying bonds issued by US companies to curb default rates. The US dollar is forecast to be weaker against the pound, the euro and the yen, as well as the Canadian dollar, the Swedish krona and the Swiss franc, as the greenback lacks high investment returns after the Fed in March slashed the benchmark interest rate
A Bollywood actor’s face tattooed on his arm, Sandeep Bacche’s devotion shocks few in India where stars enjoy semi-divine status, but even there the hallowed silver screen might be losing its shine to streaming services and pandemic fears. “Whenever things get better and theaters begin operations, I will watch three movies a day for sure just as a way to celebrate,” said the Mumbai rickshaw driver, who is recovering from the virus himself. However, others might not join the party. With cinemas shut for months due to a COVID-19 lockdown, and little prospect they will reopen soon, frustrated Bollywood producers have turned to