From an email I received.
And, of course, the global mainstream agrees.
The slow motion train wreck continues.

Main message: A policy deal may be brewing. The possibility may emerge that PM Noda would offer a BoJ Law change in return for LDP support for the tax hike bills.

The main opposition party, the LDP, has already drafted and begun deliberations on a bill to revise the BoJ Law. Meanwhile, the ruling DPJ’s committee on countermeasures for the strong yen has also discussed the same topic. These deliberations suggest that a deal may be possible between the two parties.

The content of both proposals is reportedly very close to that of the bill submitted in 2010 by Your Party – i.e. setting an inflation target and making the tenure of BoJ leadership dependent on not deviating too much from the target.

The outcome of Friday’s BoJ meeting will be important. If BoJ disappoints markets and the Diet, the forces in all parties that favor such a law change may accelerate their efforts.

Once the potential for a deal is clear, PM Noda may propose the deal to the LDP: “Pass my tax hikes, and I’ll support your BoJ Law revision.” If PM Noda were to make this proposal, I believe that the LDP would accept.

Should such a deal pass, the impact on the equity market would likely be highly positive. In my talks with clients, they put far more weight on the BoJ than on the tax hike.

2 Responses

  1. For those of us not as familiar with Japan’s structure, is this the equivalent of the US Congress re-drafting the legislation that created/enabled the Federal Reserve to say that the Fed Chairman’s tenure would be affected by their ability to keep inflation on target?

    Said another way, if the BoJ chairman targeted 2% core CPI and it was consistently coming in at 0.5% (with fiscal contraction via higher taxes), their job could be in jeopardy?

    1. @perpetual neophyte, Plus, there’s the corollary agreement to raise personal taxes to counteract any rise in aggregate demand caused by monetary policy.

      They should call it the “Alice in Blunderland Bill.”

      We should just scream: “Off with their Feds!”

      The pre-ordained crumpling of logic is preceding the slow-motion train wreck. Can’t we just get it over with? Why draw out the pain?

      This whole picture reminds one of religions nuts marching miles while flagellating their bloody backs. Except this time, it’s our own policy twits leading entire nations in the procession & pompously reading out the rules for what gets flagellated by whom, in what order.

      Memo to nation. There are no points awarded for maximizing lost output. That would be a twisted concept of fiat, indeed, yet it’s what we’re doing. Policy & net Output have become completely decoupled. Someone might want to notify the DoD. They’re into logistics.

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