Pimco's El-Erian: Japan's Economic Policy 'Revolutionary'

Monday, 20 May 2013 11:02 AM

By Dan Weil

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The boldness of the Bank of Japan (BoJ)'s stimulus plan has impressed Pimco CEO Mohamed El-Erian.

The BoJ has pledged to double the country's monetary base within two years to drive up the inflation rate to 2 percent.

“What is happening in Japan is revolutionary,” he told The New York Times. “Nothing they’ve done since the Second World War comes close in terms of economic experimentation.”

Editor's Note:
The IRS’ Worst Nightmare — How to Pay Zero Taxes

Financial markets have been impressed too. The Tokyo Stock Price Index (Topix) has soared 49 percent so far this year, compared with 18 percent for the Standard & Poor's 500 Index.

The dollar has jumped to a four-year high against the yen, trading Monday morning at 102.51 yen.

El-Erian is particularly wowed by the BoJ's quantitative easing program. "It is much bigger than the Federal Reserve’s in the United States, when you consider the size of the two economies," he said.

To be sure, success isn't assured. “This is an ambitious effort,” El-Erian noted. But, “Japan’s mounting debt load and difficult structural problems make this program a very high-risk and high-reward one.”

Japan's economy expanded 3.5 percent in the first quarter, its best performance in a year, amid strong consumer spending and exports.

“Japan is clearly back from stagnation last year,” Naoki Iizuka, an economist at Citigroup in Tokyo, told Bloomberg. “The key from here is whether [Prime Minister Shinzo] Abe can unveil a strong growth strategy. If he succeeds, that will boost business investment to support growth.”

Editor's Note: The IRS’ Worst Nightmare — How to Pay Zero Taxes

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