Bank of Japan, Quantitative Easing & Asset Bubbles

In a recent article in the WSJ, the head of the Bank of Japan (BOJ), Haruhiko Kuroda, reiterated a commitment to do “everything possible” to push the rate of increase of consumer prices to 2%.

He also assurances that if the BOJs unconventional monetary pumping (aka, quantitative easing or QE) showed signs of triggering asset bubbles, that steps would be taken to avert them.

It is a tribute to the naivete of journalists reporting on this that no one bothered to ask Kuroda how successful BOJ has been in detecting and seeing off bubbles in past!

Or any other central bank for that matter!

As it is, central banks tend to limit their attention to measuring the effect of monetary policy on price indices as the primary, if not sole, indicator of the efficacy of their efforts. As such, they have a dismal track record of detecting bubbles, as is the case with most mainstream macroeconomic analysts.

Meanwhile, it is unlikely that the BOJ is able to detect how much of the new liquidity will be bled off into foreign markets through the carry-trade, thereby sparking asset or commodity bubbles elsewhere.

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About christopher

Content of "Natural Order" attempts to reflect the commitment of Universidad Francisco Marroquin to support the development of a society of free & responsible individuals. The principal commentator for this blog is Christopher Lingle.

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