Never has a Bank of Japan policy decision garnered this much global attention, nor have punters ever been so confused about what's to come out of Tokyo.
Fresh from stealing the show in Jackson Hole, Gov. Haruhiko Kuroda has engaged in some curious monetary tweaking moves. Case in point: a steepening of the yield curve as the BOJ buys fewer long-dated government bonds and loads up on more short-term ones. Word is, Kuroda is generating this conundrum to show bankers he feels their pain as negative interest rates slam profits — the debt market corollary of Bill Clinton's 1992 "it's the economy, stupid" ethos.
If Tokyo isn't careful, it may suffer another Clinton administration phenomenon: the bond vigilantes. Back in the early 1990s, Clinton guru James Carville mused that he'd like to be reincarnated and return as the bond market so he can "intimidate everybody." Then, the White House was feeling the pain as vigilantes, angered by fiscal trends, drove yields higher. The question for Japan is this: Will Kuroda's tossing banks a bone at the expense of bond traders prompt vigilantes to take things into their own hands?