Trying to “fix” a sclerotic, inefficient state-cartel economy by boosting inflation–the ultimate goal of Japan’s Monetary Pearl Harbor– is a self-liquidating path to destruction.
The Bank of Japan’s surprise expansion of financial stimulus strikes me as the monetary equivalent of Pearl Harbor –not in the sense of launching a pre-emptive war (though the move does raise the odds of a global currency war), but in the sense of a leadership pursuing a Grand Strategy to the point of self-destruction because they have no alternative within their intellectual and political framework.
In the years before Japan’s December 7, 1941 attack on Pearl Harbor, the Imperial government’s Grand Strategy was simple: bring the entire Asian-Pacific region under the control of the Japanese Empire.
That this Imperial Project would necessarily lead to conflict with the United States was baked into the project from the moment of its inception.
The Japanese military had embraced the notion of the Decisive Battle as its core war-fighting doctrine. The goal is to draw the opponent’s main force into a battle where that force could be decisively destroyed. With their military power shattered, the opponent would be forced to sue for peace.
Just as the logic of Imperial expansion made the attack on Pearl Harbor inevitable, the logic of the Decisive Battle led to the crushing defeats at the Battle of Midway and Leyte Gulf.
It is this stubborn allegiance to a self-destructive strategy that reminds me of Imperial Japan’s devotion to expansion. In the 25 years since the 1989 apex of Japanese credit-bubble triumphalism, these same policies–monetary easing, zero interest rates and fiscal deficits to fund Bridges to Nowhere–have only exacerbated the stagnation of Japan’s economy and social adaptability.
If this massive expansion of debt is the Decisive Monetary Battle that is supposed to defeat deflation and stagnation, it will inevitably result in defeat and capitulation.
