In case you missed it, Japan had a huge day.
The Nikkei surged 2.8%.
The story remains that the government is pursuing aggressive monetary and fiscal easing. That’s weakening the yen, boosting inflation hopes, and boosting stocks.
According to Nikkei.com, the big rally comes as the Bank of Japan and the Ministry of Finance (Japan’s Treasury Department) are talking about cooperating more on policy.
This is one of the most taboo concepts in modern economics. Traditional economists will go pale, and the blood drain from their faces at the mention of non-independent monetary policy.
The Treasury is supposed to do fiscal policy. The central bank is supposed to do monetary policy.
And that’s that.
Well Japan is in the process of breaking that rule, and the market is loving it. And as economist Paul McCulley wrote in a new paper, that’s a good thing… in times of liquidity traps, etc., you need the government and the central bank to move together, with the same purpose, even if it means “monetizing” the debt or lost independence.