Kuroda to Bernanke: My Bazooka Is Bigger Than Your Bazooka

Kiyoshi Ota | Bloomberg | Getty Images

Haruhiko Kuroda

Haruhiko Kuroda to Ben Bernanke: My bazooka is bigger than your bazooka.

Expectations were so high for the Bank of Japan (BOJ) meeting that new chief Haruhiko Kuroda would have to emerge in a Samurai suit to impress anyone.

He not only came out with a Samurai suit on, he came out swinging a sword—a big sword.

To achieve an inflation target of 2 percent within two years, the BOJ is doubling its purchase of Japanese bonds to roughly 7 trillion (about $79 billion) per month. That is well beyond the roughly 4 trillion to 5 trillion yen many analysts were expecting.

Remember, the Federal Reserve is buying $85 billion a month. But Japan's gross domestic product (GDP) is one-third our size, so this bond-buying program is essentially three times the size of ours. More importantly, this will double Japan's monetary base in two years, to 270 trillion yen. That is about 50 percent of the GDP of the entire country.

By contrast, U.S. GDP is about $15 trillion and its monetary base is $3 trillion. To go to 50 percent of GDP, the Fed would have to raise the monetary base from $3 trillion to $7.5 trillion.

So what's different this time, and will it help to reflate the Japanese economy? The scope of buying is very different, as well as the size: not just short-term bonds, but long-term bonds and other risk assets, including real estate investment trusts, exchange-traded funds, and corporate bonds. This is important, because now the BOJ will influence a much broader range of financial assets ... that's the key to the reflation.

How much more life is there in the "short yen-long Japanese stocks" story? For the moment, the play is intact. One caveat: This plan has a two-year timeline. One thing is clear: Japan doesn't have two years. Kuroda needs to get results in less than a year or markets will give up on him.

Will it help the U.S. economy? Not clear—it will certainly make Japan more competitive. To the extent that this policy lifts domestic demand, that will increase demand for imports, but the weak yen will offset much of that.

Elsewhere:

1) It wasn't my idea: European Central Bank head Mario Draghi made it clear that the idea of including insured depositors in the Cyprus bail-in did not come from the ECB. He went further, saying that the first plan to take over insured deposits "was not smart." He again reiterated it was important to have some kind of mechanism to wind down insolvent banks.

2) Atlanta Federal Reserve President Dennis Lockhart, speaking on CNBC, said tapering of asset purchases could begin this summer, following up on comments yesterday from San Francisco Fed President John Williams, who said Wednesday that the Fed may scale back its purchases of bonds and could even end them some time in 2013.

—By CNBC's Bob Pisani