The Federal Reserve signals a reluctance to raise interest rates. The yen strengthens to 90 per dollar. Haruhiko Kuroda decides to act.

Helicopter money is coming, says Mark Mobius, even as soon as next month.

The 80-year-old investment veteran is outlining how he expects central banks to respond to sluggish economic growth. For Mobius, executive chairman of Templeton Emerging Markets Group, traditional easing measures have just made people save instead of spend or borrow. Combined with a stronger yen, he says that’s going to force the Bank of Japan governor to contemplate a policy he’s repeatedly ruled out.

“They’re really beginning to think what ammunition they have,” he said in an interview on a visit to a typhoon-struck Tokyo this week. “The first reaction is to say, OK, let’s go for helicopter money, let’s get money directly into the hands of consumers,” he said. “I think that would probably be the next step.”

Stimulus Flood

Central bankers have flooded their economies with monetary stimulus in the eight years since the global financial crisis, driving up asset prices -- including the stock markets that Mobius invests in -- while struggling to kickstart global growth. A foray into negative interest rates in Japan has been met with the yen surging to about 100 per dollar, falling stocks and dwindling bank profits.

Helicopter money, a kind of last resort in unconventional monetary policy, comes in several forms. The most simple is printing money and giving it to the public, hoping -- and even creating incentives that -- they’ll spend it. Others include financing state spending directly, or in other words putting money into the hands of companies.

David Fuller's view

That some version of helicopter money will be authorised shortly for Japan is a logical forecast from Mark Mobius.  I think he is right, since the strong yen will increase deflationary pressures which have confounded Japan for so many years. 

Mobius has long been a calm, sensible observer of global markets and few others have his experience.  He is also a natty dresser, usually in an off-white suit.  In fact, I don’t think I have ever seen him in a dark suit.  Is this a worrying omen, or a practical precaution before using chopsticks at a banquet in Tokyo?

The Nikkei 225 has steadied above 15,000 this year and although range trading, saw a weekly upward dynamic in April and again in early July.  However, there has been a progression of lower rally highs since last year’s high near 21,000.  A decisive break above the MA and 17,000 is required to reaffirm that demand is regaining the upper hand, and a stronger USD/JPY, clearly breaking the downward trend, might do the trick.