In response to an FT article by Patrick McGee and Robin Harding on 8th September 2015, entitled Japan GDP decline shallower than feared'
This from Reuters:
"Japanese policymakers are clinging to the hope that companies will use the record profits they earned from a weak yen and lower energy costs to boost wages and investment, generating a positive cycle of rising income and higher spending.
But a recent batch of soft data has cast doubt on such optimism and the Bank of Japan's argument that a steady recovery will help accelerate inflation to its 2 percent target by around September next year"
They will print because that's the only one of the three 'arrows that they've ever had a firm grasp on. Contrary to the chorus of mainstream economists who have for years proclaimed that sovereigns with their own currency can print to eternity, this is not so, it never was, and that fact is even starting to dawn on the IMF.
Whereas In May Mr Kurodathat said he foresees no obstacles in buying government bonds, IMF analysts are now questioning the sustainability of debt purchases. This is from an IMF report issued in August by by Serkan Arslanalp and Dennis Botman:
“Given the pace of BoJ purchases under QQE2 and projected debt issuance by the government (based on April 2015 IMF WEO projections of the fiscal deficit), we estimate that Japanese investors could shed some ¥220 trillion of JGBs until end-2018 …In particular, Japanese insurance companies and pension funds could reduce their government bond holdings by ¥44 trillion, while banks could sell another ¥176 trillion by end-2018, which would bring their JGB holdings down to 5 percent of total assets. At that point, the BoJ may have to taper its JGB purchases….
...As this limit approaches and once the BoJ starts to exit, the market could move from a situation of shortage to one with excess supply. The term premium could jump depending on whether the BoJ shrinks its balance sheet and on the fiscal deficit over the medium term”
What happens when term premium jumps?...QED.
The BoJ have entered the higher levels of cloud cuckoo land - a realm where the air is very thin and gravity provides little anchor, hence the delusional babbling and clinging to 'hope'.
What Mr Kuroda and Mr Abe will discover, sooner rather than later, is that the 'tooth fairy' is a myth even if 'tooth fairy economics' isn't.