Must-read: Tamim Bayoumi and Joseph E. Gagnon: “Time to Be Bold, Mr. Kuroda”

Must-Read: Tamim Bayoumi and Joseph E. Gagnon: Time to Be Bold, Mr. Kuroda: “The surprise decision by the Bank of Japan (BOJ) last Thursday to leave policies essentially unchanged…

…while downgrading the growth and inflation forecasts has unnerved markets…. Markets needed a surprise, but this one was in the wrong direction. What is required is a bold initiative rather than renewed paralysis…. Strong, decisive policy action is needed—and soon—to convince markets the BOJ is still determined to achieve 2 percent inflation. With 10-year government bond yields now below zero, the most effective option is to ramp up purchases of other assets. Currently, the BOJ is buying about 0.5 percent of outstanding equities per year. Raising the rate of purchase to 10 percent would herald a major break with the past, pushing up equity prices and encouraging consumption and investment through higher household wealth and lower cost of capital.