Posted by WARREN MOSLER on May 2nd, 2012
From an email I received.
And, of course, the global mainstream agrees.
The slow motion train wreck continues.
Main message: A policy deal may be brewing. The possibility may emerge that PM Noda would offer a BoJ Law change in return for LDP support for the tax hike bills.
The main opposition party, the LDP, has already drafted and begun deliberations on a bill to revise the BoJ Law. Meanwhile, the ruling DPJ’s committee on countermeasures for the strong yen has also discussed the same topic. These deliberations suggest that a deal may be possible between the two parties.
The content of both proposals is reportedly very close to that of the bill submitted in 2010 by Your Party – i.e. setting an inflation target and making the tenure of BoJ leadership dependent on not deviating too much from the target.
The outcome of Friday’s BoJ meeting will be important. If BoJ disappoints markets and the Diet, the forces in all parties that favor such a law change may accelerate their efforts.
Once the potential for a deal is clear, PM Noda may propose the deal to the LDP: “Pass my tax hikes, and I’ll support your BoJ Law revision.” If PM Noda were to make this proposal, I believe that the LDP would accept.
Should such a deal pass, the impact on the equity market would likely be highly positive. In my talks with clients, they put far more weight on the BoJ than on the tax hike.