I agree with Nobuhiro Hiwatari on the economic concerns of the voters.

Meanwhile,Mark Manger wrote:
I almost completely agree with the assessment of Japan's economy by Richard Katz

RK:

Why is it so hard for me to get people to stop there?
Why is that so offten followed by a "but..." Oh, well.

MM:

but it contains a conceptual error: Of course the Yen exchange rate in the sense of deliberate depreciation is in Abe's control. All it would take would be to legislate that MOF declares an exchange rate target, and then further change laws that the BOJ has to support this target by printing unlimited amounts of Yen...

The Swiss central bank has just successfully demonstrated that this works by declaring that the Swiss franc would not be allowed to appreciate beyond 1.20Fr to the Euro.

RK:

Ten years ago, I would have agreed with you. But the failure of the massive 2003-04 intervention and of subsequent efforts has convinced me otherwise.

Some of Abe's advisors, including Kazuko Iwata, a wannabe for BOJ Governor, has proposed that Japan could control the yen even without an announced fixed-rate.
He claims it would just take Y50 trllion yen--or more than 10% of Japanese GDP--of BOJ-made money to do the trick. In the campaign Abe spoke of a public-private fund of as much as Y100 million (if memory serves) to buy foreign bonds. This talk has since gone down the memory hole as foreigners and some Japanese business leaders criticized it.

Let's take what has happened under the current flloating currency regime and then go to your proposal for a Swiss solution. Since 2001, the best leading indicator of the yen rate has been the gap between US and Japanese ten-year bond rates, with a correlation of 89%. The currency markets have seen that as a signal to buy and sell. That relationship does not always hold, and we'll see if the yen is now breaking out of that pattern. But, in any case, it held during the 15 months from January 2003 to March 2004 when the government of Japan spent Y35 trillion (7% of GDP) on intervention and yet the nominal yen APPRECIATED 8% from Y119/$ to Y109. If one does a chart comparing the Y/$ rate to the Japan/US interest rate gap, one cannot even tell that the intervention occurred. A similar thing happened in
2011 when Japan spent Y4 trillion in just one day.
Since Japan's rates were already so low, it was changes in the US 10-year rate that changed the gap. In other words, a few decisions by Alan Greenspan about US monetary ease,made without regard to Japan, had more power over the yen rate than all of Japan's intervention.

The reason for this is simple. Currency markets have completely changed since the end of the Bretton Woods fixed-rate system in 1971. Previously, almost all selling and buying of currencies was for the purpose of conducting transactions in the economy, either trade or capital flows. Even then, currency speculators overwhelmed fixed rates that fell too out of whack with changes in economies over time, e.g. the pound crisis.
Today, however, as much as 90% of currency trades are pure speculation having nothing to do with either trade or capital flows. According to the BIS in 2012, average DAILY turnover in the currency markets was about $5 trillion, and it keeps growing. The 2012 turnover was more than double the 2004 level. About 20% of the trades are in yen, i.e. $1 trillion per day. At today's exchange rate, that would be Y88 trillion each and every business DAY, far more than total Japanese exports of goods and services of Y70 trillion PER YEAR.
So, when the Ministry of Finance goes out to buy even
Y50 trillion of yen, the speculators quite happily and easily bet against the MOF, have more money to do so than the MOF, and get rich by countering the MOF. Sure, the BOJ can run its printing presses full steam, but derivatives, futures, options, options on futures, futures on options, etc. let speculators come up with an equal and opposite amount of money. As Alan Greenspan wrote in 2007, "Even the then seemingly massive Japanese purchases of foreign exchange barely budged the prices of the vast global pool of tradable securities."

Suppose the MOF tries to fix the yen around Y100/$ when the market thinks it should be Y90. So, speculators use dollars to buy yen get Y100 for each dollar. Their purchases push the yen upward a bit, let's say to Y98/$. In that case they sell their 100 yen in the forex markets and get $1.02. They've made a 2% profit in just a few minutes, or hours or days. And then the MOF pushes back and the whole process starts all over again. The MOF has simply made speculators rich without affecting the yen rate. Look at the massive private capita flows into Japan during the period of intervention that simply neutralized the MOF actions.

So, why can't Japan do what Switzerland did? Because Japan is not Switzerland. Just because a mouse can crawl underneath a door doesn't mean that a cat can do so. Switzerland is much smaller and less important in global trade and capital flows and in daily trades on global forex markets. As far as I know, the EU did not flip its wig when the Swiss National Bank put in the ceiling. The US Treasury and EU and China and other Asian would do so if Tokyo made a similar move. Knowing this, currency speculators would bet against the MOF/BOJ being able to sustain the policy, just as they did in the fixed currency system. If the speculators expect the MOF to fail, then they will take actions that will make it fail--in a self-fulfilling prophecy.
If speculators believe that the EU will tolerate the Swiss policy, then they won't necessarily fight against it.

Also, keep this in mind. With Japan having deflation and the rest of the world having inflation, the nominal yen has to rise a few percent per year just to keep the real (Price-adjusted) yen from becoming undervalued.
So, even if the rate that the MOF set today were market-conforming, in a few years, it would be out of whack with fundamentals. Speculators know this.

Finally, as to the theory in the article that you
cited: a number "rational expectations" monetary economists buy this notion despite all the evidence against it. One of them was John Taylor-after whom the famous monetary "Taylor rule" is named. When he was Undersecretary of the Treasury for International Affairs in the George W. Bush administration, he secretly supported Japan's massive 2003-04 currency intervention as a means of getting Japan to apply even more quantitative easing because he thought this would defeat deflation. "By not registering objections to the intervention, effectively allowing it to happen, the U.S. might make it easier for Japan to pump up their money supply," said Taylor in an autumn 2006 speech.
Then, in his 2007 book, Global Financial Warriors, Taylor went so far as to claim that the policy succeeded on both the yen front and in ending Japan's economic lethargy: "The yen did not strengthen much after the intervention ended March 5 [2004]. Everyone recognized that the Japanese recovery was solid and that the lost decade was a thing of past [emphasis added]." The latter sentence was approvingly cited in a December 2007 paper by Abe advisor Koichi Hamada.

Taylor could not have been more wrong. The nominal yen continued to strengthen, deflation went on its merry way, and, within a year after Taylor published this verdict, Japan's economy entered its worst slump in the entire postwar era. It has yet to recover to the pre-recesion peak. The lost decade has turned into the lost decades.

Richard Katz
The Oriental Economist Report