Despite record debt, the yen will not stay down
By Yann Quelenn
The Bank of Japan’s debt is at an all-time high: larger than the US Federal Reserve’s debt, and nearly the size of Japan’s nominal GDP. Yet, markets are bullish on the USD/JPY pair on the strong expectations that the Fed will keep raising rates in 2018.
Japan’s quantitative easing has been massive. The BoJ’s debt has tripled in in the past three years. This same debt will make a return to ‘normal’ monetary policy difficult, at least within the next few years. Lowering the QE would trigger massive turmoil in the economy. Wages are not increasing, and inflation is still not there to kill the debt. The BoJ is all-in and won’t back out in the medium-term (even though being all-in is not getting its hoped-for results.)