People have been arguing for a while that central banks are reaching the limit of their capabilities, even as they keep coming up with novel ways to stimulate their economies.
However the Bank of Japan may truly be reaching its 'endgame,' according to M&G Ltd fund manager Eric Lonergan.
Ever since the Bank of Japan waded into negative interest-rate territory in the first quarter this year, markets have witnessed an outcome more characteristic of monetary tightening — the yen has strengthened, and risk assets have performed poorly.
This counterintuitive market reaction, argues Lonergan, is behind what he calls Japan's "endgame."
"When I say the endgame, we have reached the point where what have now become conventional tools of monetary policy — quantitative easing and negative interest rates — are actually now having detrimental side-effects," Lonergan said in an interview with Bloomberg TV on Monday.
"It's not clear that lower interest rates are actually stimulating consumption and they may have actually be increasing the desire to save," added Lonergan. "So you could actually be getting the opposite effects to those you are trying to achieve by pushing the interest rate ever lower."
One worry, according to Lonergan, is that monetary policy is having a distortive impact on asset prices. "We've already seen events, which are really non-events, cause significant asset-price volatility," he said.
Japanese government bonds are slumping toward their worst quarterly performance since 2003, with longer-dated debt under particular pressure. These brutal price moves came as investors fret over whether the central bank will trim its debt purchases when announcing the result of its monetary policy meeting on Wednesday.
This crisis of confidence in monetary policy, mirrored across the Pacific were Federal Reserve officials are questioning the efficacy of their own tools, means that investors waiting on the BOJ's decision no longer knows "what good news looks like," in Lonergan's phrase.
Adding to the dilemma is the lack of a Plan B.
"Are we just going to give up on the monetary policy or are there other things we can do? I think they have to be pressed on this issue," he said. "We have to start seeing answers - whether it's helicopter drops or buying equities, or fiscal monetary coordination."