Ben in Tokyo

PIMCO Bonds - FF April 2006: "The Bank of Japan’s announcement on March 9 that it would be exiting its regime of Quantitative Easing (QE), initiated in March 2001, was bittersweet joy for me. Not that I disagreed with the Bank of Japan’s decision at all. It was the right thing to do at the right time. I applaud!

My melancholy was driven not by the looming end of QE, but rather by my reflections on the conditions that had triggered QE in the first place: a Minsky-style debt-deflation in Japan. Such an outcome should not have unfolded. And it would not have ever unfolded, I firmly believe, if Japanese policymakers had pursued and sustained proper Keynesian reflationary policies following the collapse of equity and property bubbles in the early 1990s.

QE was the last-ditch policy to get Japan out of the debt-deflation ditch. And it worked! The mechanical details of the QE approach are fascinating, both historically and prospectively, as we try to forecast the machinations of its removal. My Tokyo-based PIMCO colleague Tomoya Masanao does a fantastic job going through these matters in a special center-section article in this edition of Fed Focus. "