What's going on now in Japan really defies belief, but that's nothing new. They've basically been repeating the same errors over and over and over again for the past decade.

My reading is that it's less a matter of political infighting between the Bank of Japan and the Finance Ministry than another extraordinary example of high-level confusion and incompetence. Yes, the BoJ is making vague noises that suggest it is finally open to considering the possibility of taking "quantitative easing" action. But it often happens in Japan that officials will latch on to a phrase or term like "quantitative easing" and use it for whatever suits their current purposes, while totally perverting its actual meaning.

For you and me, a quantitative approach to policy would imply that the operational focus shifts from targeting an interest rate to directly injecting sufficient liquidity so that by some objective measure the monetary deflation is actually being overcome. In other words, buy bonds. Obviously, whether or not you're actually targeting the yen, one would expect that such a policy would imply a significant exchange rate depreciation as the supply of yen liquidity becomes more abundant relative to demand. Almost by definition, if that isn't happening, then enough isn't being done to reflate the currency.

But among the Japanese policy elite, strictures against "excessive yen weakening" have much longer standing than any enthusiasm for "quantitative easing." The BoJ and Finance Ministry have actually been quite consistent recently in maintaining that whatever happens, they have no desire to see the yen weaken significantly from current levels. Thus, any policy changes that emerge are likely to be "quantitative" in name only. It would not surprise me in the least if we are soon witness to another typical Japanese Kabuki dance in which the BoJ buys long-term JGBs in furtherance of some arbitrary quantitative objective, but sterilizes the currency effects by selling dollars for yen in the forex market. It would end up being a totally meaningless gesture, but that's par for the course in Japan.