Japanese QE: beware exaggeration

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Posted on Friday, April 5, 2013 at 09:23AM by

Simon Ward |

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Bank of Japan securities purchases of ¥52 trillion in 2013 (up from ¥36 trillion under the Shirakawa plans) are equivalent to 4.6% of the M3 broad money supply measure. According to the Bank of England, QE “pass-through” to broad money has been about 60% in the UK. Applying the same figure to Japan suggests a broad money increase of 2.8%. There are grounds for believing that the BoE estimate is too high – a previous post argued that pass-through may have been as low as 20%, which if applied to Japan would imply an M3 boost of only 0.9%. Bottom line: suggestions of a 10% broad money rise over the next year are implausible. The FT’s headline about money in circulation doubling is highly misleading.

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