Should The BoJ Make Its Next QE Oil-Buying?

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the obvious alternative of buying foreign assets is challenging. Direct currency manipulation is a diplomatic no-no nowadays for such a big country as Japan, so buying U.S. Treasurys--similar to Swiss purchases of European bonds--is not realistic.

There are more extreme options, such as direct financing of government spending, or abolishing bank notes so interest rates can go deeply negative. None is politically palatable.

Compared with these, creating money to buy oil has several big advantages.

First, it allows the BOJ directly to weaken the currency without dangerous diplomatic repercussions. Oil is denominated in dollars, so yen have to be sold to finance the purchase. But the U.S. could hardly object to Japan importing more oil... Second, purchases by the BOJ would push up the price of crude. Japanese consumers may not see that as a good thing, but investors are fixated on the oil price as a measure of whether to take risk or not... Third, Japan imports almost all its oil and has fewer days' reserves than the average importer. Building new oil storage would support investment, too.