Japan Signals That the End Game Has Begun

Quietly as an aside in a speech, the Head of the Bank of Japan, Haruhiko Kuroda, confessed that QE has little if any impact on GDP growth.

I touched upon this issue previously, but I want to reiterate it here because it is absolutely ASTOUNDING.

The Bank of Japan is the global leader for monetary policy. Indeed, it has been experimenting with severe monetary policy for DECADES.

The Fed first implemented ZIRP and QE in 2008. The ECB first cut rates to ZIRP in 2014 and implemented QE in 2015.

The Bank of Japan began easing back in the early ‘90s. It implemented ZIRP for the first time in 1999. Thus it has been maintaining ZIRP for the better part of two decades.

The Bank of Japan also launched its first QE program in 2001. And it never looked back. Currently its balance sheet is over $3 trillion, equal to over 65% of Japan’s GDP.

To give some perspective on this, the Fed’s balance sheet even after its $3.5 trillion expansion is a mere 25% of US GDP. For the Fed to approach a balance sheet expansion equal to that of Japan it would need to grow its balance sheet to OVER $11 TRILLION!

In short, the Bank of Japan is THE leader for Central Banker monetary policy.

This is why the Head of the Bank of Japan, Haruhiko Kuroda’s admission that Japan has a GDP “potential” of 0.5% of less is such a huge deal. It is effectively the head of the single most aggressive Central Bank on the planet admitting that no matter how much QE or ZIRP he employs there is a definitive ceiling (a low one at that) for GDP growth.

Imagine if an athlete stated that no matter how much he or she trained there would be next to no improvement… or better yet, imagine if a Doctor told you that no matter how much medicine or treatment you took, you would not recover from an illness?

That is what Kuroda admitted regarding Central Bank monetary policy.

Frankly, I am shocked he said it. But then again, he and his bank are over two decades into the biggest monetary failure in history (despite 16 years of ZIRP and 15 years of QE, Japan’s growth rate continues to trend down).

I’m not surprised that the markets haven’t reacted to this. It’s so incredible that virtually no one caught on. And truth be told, it’s going to take the markets months to truly “get” Kuroda’s confession. Once this happens, the REAL Crisis (the crisis of faith in Central Banks) will have officially begun.

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research