Suppose I announced I would be buying an asset, both now and in future. And suppose people believed my announcement. It would be paradoxical if my announcement caused the price of that asset to fall. It would be even more paradoxical if I had said I was buying the asset because I was trying to make its price go up. That's what's been happening in Japan. Bond prices have been falling (and so bond yields have been rising), as a result (probably) of Abenomics.
There are a few cases where this paradoxical result might happen:
Maybe I have a reputation for being a really bad investor, who always loses money. So when other people see me buying houses, they all decide to sell their houses.
Maybe the sheer knowledge that I own an asset makes that asset less valuable. Because I'm so very unfashionable that if I buy a Burberry swimsuit everybody else stops buying Burberry.
Or maybe I'm buying taxi medallions, and paying for them with newly-produced bicycles. With a flood of bicycles on the market, fewer people want to take a taxi, so the medallions are worth less.
That last example is the closest to the current Japanese case. It's not just what you buy, but what you buy it with. An increase in the stock of bicycles in circulation on the streets, both now and in future, will have an effect on the demand for taxi medallions. An increase in the stock of money in circulation, both now and in future, will have an effect on the demand for bonds. Because it can raise the expected future price level, and/or expected future real income, which would reduce the demand for bonds.
If you think of monetary policy as interest rate policy, it's hard to escape the paradox. It's like if your mechanic hooks up your car's power steering hoses the wrong way around. So if you try to turn the steering wheel clockwise, to turn the car right, you are surprised to feel the steering wheel fight back, actually turn counterclockwise, and the car turn left. Once you figured out how it worked, and got used to it, you might be able to steer the car. But is the English language up to the job of clearly describing what you are doing when you steer the car? "Which way are you trying to turn the steering wheel??". My guess is that the Japanese language would have the same problem.
If you are aware that printing money and buying bonds and "trying" to force bond yields down will in fact result in economic recovery, and expectations of recovery will cause a rise in investment, a fall in saving, and less demand for the liquidity and safety of government bonds, and these will cause a rise in bond yields, and if you intend that economic recovery to happen, and you are willing to accept that rise in bond yields as a side-effect of that recovery, are you really truly trying to force bond yields down? Well, yes and no. But the rise in bond yields does not mean your policy has failed. On the contrary, it means your policy is succeeding.
Is the Bank of Japan trying to push down bond yields? Well, yes and no. Yes, it is fighting a battle to push down bond yields, but that battle is part of a wider war for economic recovery. And if it wins that war for economic recovery, it will lose that battle to push down bond yields. So it wants to lose that battle to push down bond yields.
This is what Ambrose Evans-Pritchard says that Richard Koo says:
"As I reported last night, Mr Koo thinks the Abenomics plan of monetary reflation is madness. “Once inflation concerns start to emerge the BoJ will be unable to restrain a rise in yields no matter how many bonds it buys.” This could lead a “loss of faith in the Japanese government” and the “beginning of the end” for Japan’s economy."
Yep. When the Japanese economy recovers enough from deflation and recession, the BoJ will be unable to restrain a rise in bond yields. Because the harder it "tries" to restrain them, the more the equilibrium yield will rise. But when the recovery looks strong enough, the BoJ will stop "trying" to restrain bond yields, and start "trying" to increase them, at which point those bond yields will stop rising.
Ambrose also says that Richard Koo is "... Japan’s most famous economist and an arch-Keynesian." There's a lot of weight placed on the "arch" bit in "arch-Keynesian. Paul Krugman is a Keynesian, but I don't think Paul would have a problem recognising that Abenomics, if successful, would drive up bond yields. I think he would cheer the rise in bond yields, and say it means that the BoJ has escaped the liquidity trap, so that monetary policy once again has "traction". Is Richard Koo really a Keynesian? Or is he just a finance guy, who doesn't really get macro/money? (I don't know the answer to that question.)
This is not the "beginning of the end" of the Japanese economy. But it might be, and I hope it is, the beginning of the end of Japan's long recession.
And if this is indeed the beginning of the end of Japan's long recession, it will also be the beginning of the end of Richard Koo's thesis that monetary policy is powerless in a balance sheet recession, and that only fiscal policy can offset private sector deleveraging. And we can only regret that Japan did not do this many years earlier, instead of wasting all those years and letting Japan's government debt/GDP ratio climb. Because that high debt/GDP ratio is the only reason why someone might want Japan's economic recovery but not want the higher interest rates that will accompany that recovery. Which is no reason to try to stop the recovery. Though it is one additional reason to regret not having done something like Abenomics a lot earlier.