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Suddenly there’s an avalanche of talk that central banks of some highly indebted countries should just rip up the sovereign debt they’ve acquired via quantitative easing. This is a topic we discussed heavily this weekend.The latest contribution to this discussion is a quick comment from SocGen’s Kit Juckes, in regards to Japan.
Of all the central banks, he says, it makes the most sense for the Bank of Japan, given the size of the Japanese debtload and the need to weaken the yen:
But the case for MOF/BOJ to be more aggressive in efforts to undermine their currency grows. S&P muttering abut downgrading Japan’s ratings helps at the margin. The best thing they could do of course would be for the BOJ to steal a march on all others and simply cancel QE debt. I have been trying to figure out the pros and cons of cancelling bonds, as opposed to simply waiting for them to mature, and then giving the money back to the Govt (which is what may happen in the UK and US). The ‘con’ is that such barefaced debasement will spook investors but since that makes you currency go down, the BOJ may welcome such an outcome! The ECB ought to try it too, but the hurdles (or Hurden) may be insurmountable.
This line of thinking seems to be where more people are going: What exactly would be the big problem? Some inflation? Some currency weakening? That’s exactly what everyone wants!
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