I beg to differ from 'Rick Katz on 2 points. He says there is no difference between

>(a)the government running a fiscal
deficit....auctioning an eqaivalent
>amount of JGBs.... BoJ takes a similar quantity of
them out of
>circulation in the name of quntliitative easing...
>(b) MoF simply paying its bills with yen it orders
BoJ to print...

The difference is that the BoJ adds more JGBs to its balance sheet in the one case, and reduces the percentage of outstanding BoJs held privately.
What effect that has on the propensity to unload JGBs and raise interest rates I am not clever enough to work out. But let me pass on an idea of Ogata Shijuro who ought to have become BoJ governor in his day: BoJ should divide its JGB holdings into those it promises to hold until maturity booked at face value, and those it holds for trading booked at market price.

Secondly, I find it hard to believe that if the government declared that it was going to expand the monetised deficit until inflation reached 5%, and shortened the revision period for the minimum wage to ensure wage cost push, it would fail to lead to a sell-off of JGBs and a rise in interest rates to the zone where monetary policy starts to be effective and isn't just pushing on a piece of string.

There are announcements and announcements, and defying universal central bank wisdom about inflation that has been orthodoxy for 40 years seems to me like a really effect-producing annoucement.

P.S. May I supplement my reply to Richard Katz, I got Ogata's suggestion wrong. I said that it was to insist on BoJ's balance sheet showing separately JGBs which it intended to hold to maturity, booked at fave value) and those it was ready to trade booked at market value. He tells me he actually meant a change in the bank law that would require all banks (and insurance companies?) to do the same, much as industrial companies used to separate their mochiai share holdings from their marketable share holdings. (Do they still?) What the effect this effective shrinking of the liquidity of the bond market would be on a day like today when investors are apparently selling 10-year bonds and buying 2-year ones I am not clever enough to work out, but I hope somebody in BoJ and MoF are working on it.

Ronald Dore