Not Alone

Elected officials are being obstructive, and the central bank just initiated another round of quantitative easing.

But it is not in Washington. It's in Tokyo - a kind of Far Eastern version of political grid-lock, with the monetary authorities scrambling to fill the policy gap. Members of the Upper House of the Japanese Parliament, controlled by the opposition Liberal Democratic Party (LDP), are blocking passage of the latest bond issue to fund day-to-day government operations. Without it, public functions in Japan will cease.

This political leverage is not being applied as a means of reducing government spending - as the Republican Party in America did during last summer's debt-ceiling negotiations. Its much baser motivation is to force Prime Minister Yoshihiko Noda into establishing a firm date for a national election. Given that the Japanese economy is stalling, again, the LDP thinks now is the time to exploit such weakness in order to regain the leadership they held for much of the post-war period.

Prime Minister Noda's Democratic Party of Japan (DPJ) is hardly beyond its own political suasion. Despite expanding its quantitative easing just one month ago, the Japanese central bank has just announced $138 billion of further purchases of financial assets, to lower interest rates and thereby reignite aggregate demand. This is no doubt in response to more weak economic data. But the government's Economy Minister, Seiji Maehara, intervened, for a second time, at the Bank of Japan's monthly policy meeting, just to make certain that it would provide more easing. It is not normal procedure to pressure the Bank of Japan, at least not this blatantly.

Imagine, for a moment, the boost to confidence and employment, to stock prices and their multiples, and to budget positions and overall economic growth, if politicians in Japan, the third-largest economy in the world, and in America, could, in a phrase, get their act together. If they did, it would suddenly matter just a bit less that Europe is mired in debt and recession, or that China is at a critical inflection point as it transitions, after ten years, to a new political leader next month.