Macroscope | Japanese PM Shinzo Abe plays Super Mario in Rio, but is it game over for Abenomics?

Japanese Prime Minister Shinzo Abe’s cameo appearance as video game icon Super Mario at the closing of this year’s Olympiad in Rio helped promote the 2020 games in Tokyo, but cannot disguise the fact that some think it may be game over for Japan’s current combination of fiscal and monetary policy settings, known as Abenomics.

David Stockman, US President Ronald Reagan’s director of the Office of Management and Budget, has been scathing about Bank of Japan’s (BOJ) monetary policies, last week describing BOJ Governor Haruhiko Kuroda “as the most foolish central banker of all time”.

Stockman believes Japan is marching “resolutely toward its destiny as the world’s first bankrupt old age colony”, waspishly comparing the BOJ’s purchases of Japanese government bonds, part of its policy of quantitative and qualitative easing, to an insect trap that allows cockroaches to enter but not to exit.

“The BOJ is the ultimate roach motel,” Stockman wrote. “At length, virtually every scrap of Japan’s gargantuan public debt will go marching into its vaults never to return, and at ‘whatever it takes’ in terms of bond prices to meet the BOJ’s lunatic quotas.”

While Stockman’s caustic tone will grate with many, there is no doubt that, despite its best efforts, the BOJ’s attempts to hit its 2 per cent target for inflation remain a work in progress.

“One of the key elements of our policy is to push up inflation expectations to our price stability target and anchor them there,” Kuroda re-iterated on Saturday, speaking at the US Federal Reserve-hosted central banks symposium in Jackson Hole, Wyoming.