Japan's Economic Minister Made An Unheard-Of Comment To Juice The Stock Market ? And It May Have Been Genius

Japan's stock market is going nuts today.

The Nikkei is up 2.3%

Nikkei

The main reason?

This weekend, Japan's economic minister Akira Amrai said that it was a goal for the Nikkei to hit 13,000 by the end of March.

Japan's market has already been on a mega-tear, and now the economic minister is aiming for another 17% rally by the end of March?

We have no recollection of a senior economic official in a developed economy saying anything like this before.

So is it smart? Felix Salmon says it's worth a shot, based on wealth effect argument.

I like this move: it shows imagination, and the upside is much bigger than the downside. The worst that can happen is that it doesn?t work, and the stock market ends up doing what the stock market would have done anyway; the best that can happen is that it helps accelerate the broad recovery that everybody in Japan is hoping for this year.

But in addition to raising asset prices, it does something else, it makes the government look economically reckless. That's a good thing.

Already the new PM Shinzo Abe has taken several steps down this path, including his goal to have the Bank of Japan be subsumed by the Ministry of Finance, a violation of the cherished principal of central bank independence.

Why is this a good thing? Because when you're in a deflationary trap, the economy becomes a victim of the central bank's credibility. People don't believe that inflation can be left to run, because they assume that the central bank will put a clamp down as soon as things get going.

As Paul Krugman recently explained to us in an interview, Japan is solving that, by committing to be irresponsible.

The 13,000 pronouncement furthers that goal. An inflation target here. Unlimited QE there. A Nikkei target here. Suddenly people believe that the government is going to put the pedal to the floor and let things run a bit.

Source: http://feedproxy.google.com/~r/businessinsider/~3/RIDS50_IOt8/japan-economic-ministers-13000-nikkei-target-2013-2

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