Bank of Japan Should Stop Meddling in Financial Markets

Whatever else killed George Washington, the draining of more than a third of his blood in less than half a day would probably have done him in anyway. Well into the 19th century, bloodletting, as it was called, was the favored treatment of doctors for pretty much everything for two reasons: First, it was based on a generally accepted (though woefully wrong) idea of how the human body worked. And second, no one really tracked treatments’ success or failure rates.

The reason for this historical medical stroll is that current central bankers, for all their impressive-looking equations and studies, have more in common with those long-ago doctors than they would like to think. When bloodletting didn’t work, the remedy was often more bloodletting. To the modern central banker, the answer to just about everything that has gone wrong in the past couple of decades was looser monetary policy, by which they meant ever lower short- and long-term rates. But their theories, it turns out, have often rested upon shaky foundations and, in some cases, the evidence strongly suggests that rather than stimulating economic growth and inflation, their activities have done exactly the opposite. Nowhere is this more true than in Japan, despite the reassuringly avuncular certitude of Haruhiko Kuroda, the governor of the Bank of Japan.