Has the last samurai of the hard money clan hung up his sword? That is the way it looks. The Bank of Japan’s decision to adopt an inflation target and double its bond purchase programme completes the global flight to soft money. The implications are likely to be profound.
The biggest surprise was the timing. In late January, Bank of Japan governor Masaaki Shirakawa was in London repeating the BoJ mantra – Japanese deflation was structural and nothing could be done about it. A few weeks later he was joining the ranks of the monetary activists.
Why the volte-face? Political reality is the likely answer. The Bank of Japan’s isolation had become increasingly untenable.
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