Japan will deliver on its promise of higher inflation

In our cover story this week we talk about quantitative easing (QE) in Japan, the near certainty of another round later on this year, and our conviction that Bank of Japan will keep printing until it gets the inflation it wants (or more than it wants). I am asked what makes us so sure.

Albert Edwards of Société Générale offers the answer we would give. He normally has a pretty “healthy scepticism” about any government stating an objective and then actually achieving it, but not on this occasion.

This time he believes that “the new regime (both government and the Bank of Japan) is absolutely committed to achieving its end result.” It really “does have the appetite to print unlimited amounts of money.”

That’s partly because it needs to monetise its debt one way or another and to keep JGB yields down along the way of course. But there is something else going on here too. Most political promises are hard to deliver – that’s why they rarely get delivered. But that’s not a problem with creating inflation.

You don’t need to find any real money (you haven’t promised to build schools and hospitals); you don’t need to sit around budgeting, hiring, and strategizing; and (outrageously) you don’t need parliamentary approval. It’s just a matter of pressing a few buttons, training a few extra traders and deciding which assets to favour (in Japan they will soon be moving on to REITs and ETFs).

Better still, the side effects are no big deal in the short term: some are great for governments (rising real asset prices – hooray!) and the others (irritable savers and the like) can generally be bought off with a mini tax-break or two (something like the Nippon ISA…) and a promise of a better future.

So why not just keep on doing it until you get (roughly) what you want?

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+


MoneyWeek magazine

Latest issue:

Magazine cover
Why you should worry about Greece

...and how to protect your wealth

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

From ADRs to Z scores – all the terms you wish you understood, but were too embarrassed to ask about.

Got something you just have to get off your chest? Let us know what you think about MoneyWeek, the big issues of the day, and anything else that's on your mind.

Email your comments and observations to haveyoursay@moneyweek.com. We'll publish a selection – each week's best entry will win a bottle of wine.


Gervais Williams: if you want real dividend growth, buy small-cap stocks

Merryn Somerset Webb interviews small-cap stock expert Gervais Williams about how penny shares outperform blue chips 'again and again'.


Which investment platform is the right one for you?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from, with varying fees and charges. Find out which is best for you.


3 July 1767: Pitcairn Island is discovered


Pitcairn Island was spotted on this day in 1767 by 15-year old midshipman Robert Pitcairn, serving on HMS Swallow. It was marked wrongly on the ship's chart, and was promptly lost again.


Anatomy of a Grexit: how Greece would go about leaving the euro

Jonathan Loynes and Jennifer McKeown, economists at Capital Economics, look at the key issues and challenges of a Grexit, how it might be best managed, and set out a timetable for change.