Matthew O’Brien from the Atlantic blog thinks Japan is the next domino in the Sovereign Debt tour.
Unfortunately, the BOJ is not known for its boldness. (In the 1990s, a professor named Ben Bernanke notably critiqued the BOJ for its “paralysis” in the wake of Japan’s burst bubble). Just consider this mind-boggling fact: The total size of Japan’s economy has fallen since 1992. That constitutes an epic, epic failure by the BOJ, which should aim to keep the total size of the economy growing steadily. And the BOJ hasn’t seemed to learn much, either. It recently announced that it would target inflation at just 1 percent a year (as opposed to 2 percent most everywhere else). That’s a simply flabbergasting decision considering Japan’s depressed economy and titanic public debt load. Japan should have a higher inflation target than other advanced economies, not a lower one. A higher inflation target — say 4 to 5 percent — combined with a devalued yen would let Japan work off a decent chunk of its debt, and inflate away the rest over the period of a decade or so. A 1 percent target is planning for failure.