Is the Bank of Japan creating the biggest pyramid scheme in history? In recent weeks Haruhiko Kuroda has been the toast of the financial world, winning plaudits from Nobel laureates Paul Krugman and Joseph Stiglitz. The move by the BoJ governor to end deflation with large bond purchases has been cheered by International Monetary Fund managing director Christine Lagarde, Asian Development Bank president Takehiko Nakao and the Japanese business establishment.
Yet markets are raising troubling questions about Prime Minister Shinzo Abe's revival plans - dubbed Abenomics - of which Kuroda's bond-buying is a critical part.
On Thursday, the Nikkei 225 Stock Average plunged more than 5 per cent. The broader Topix lost 3.8 per cent, after a 6.9 per cent drop on May 23, its biggest one-day decline since the March 2011 tsunami and nuclear disaster.
The market is now down 11 per cent since May 22. That officially puts Japan in correction mode.
What's going on? Investors, who have driven the Nikkei up 30 per cent since the beginning of the year, are unnerved by bond yields that continue to gyrate despite the huge purchases by the BoJ.
Kuroda has tried to calm fears, insisting that he sees no signs of "excessively bullish expectations" in the stockmarket boom. But the markets are clearly reading his words as pro forma: What else is he going to say, that he suddenly has doubts about Abenomics?
Some of the sell-off represents simple profit-taking. Some reflects impatience. Investors no longer seem content to wait for Abe to reveal the most difficult part of his strategy - the politically controversial structural reforms that will be necessary to fully revive the Japanese economy.
Although the prime minister had promised to lay out his plans next month, there has been talk that he might postpone the announcement until after next month's elections for the upper house of the legislature, which his Liberal Democratic Party is expected to win handily. Delay is no longer an option: Unless they see details soon, markets will probably remain volatile.
More worrisome for Japan's leaders, investors are also beginning to question the other pillars of Abenomics - Kuroda's bond-buying, and a yen that has dropped 20 per cent in value since November.
Abe's plan was for BoJ largesse to lift equity prices, fueling what surrogates call a "confidence effect" and spurring consumer spending. Yet the stockmarket boom has largely been driven by overseas investors.
Too few Japanese own stocks, and for those who do, holdings tend to be too small to drive spending. About 40 per cent of stocks are owned by the richest 20 per cent of the population; two-thirds of stockholders are older than 60.
The editor-in-chief of the New York-based Oriental Economist Report, Richard Katz, is among those who think the recent boom has been speculative; it's not as if Japanese companies have suddenly become more efficient or more responsive to shareholder gripes.
"The alleged wealth effect from the stockmarket rally is more of an advertising slogan from the PR firm of Abenomics' happy talk than a
serious economic analysis," Katz says.
The BoJ's ultraloose polices are also proving problematic. As investors consider the possibility of a reflated Japan, they are bidding up yields. Each surge is prompting the BoJ to come to the rescue with a few trillion dollars here and a few trillion there. As the frequency, speed and magnitude of these interventions grow, Kuroda is creating a pattern of moral hazard that the BoJ will be hard-pressed to break.
How does Japan expect bondholders to sit by quietly if inflation increases to 2 per cent, Kuroda's declared target?
Yes, the country's financial system is unique, with more than 90 per cent of government IOUs held domestically. But the idea that banks, companies, pension funds, universities, endowments, insurance companies, government-run institutions, the postal savings system and individuals (many of whom are elderly and living on a fixed income) won't sell is just fanciful.
"If you believe Kuroda, why would you hold bonds, especially when you can sell near all-time price highs and yield lows?" says Sean Corrigan, the chief investment strategist at Diapason Commodities Management in Lausanne, Switzerland. Unless government tax revenue surges along with bond yields, Abe and Kuroda will have some explaining to do.
The rest of Asia is beginning to worry that Japan won't be able get enough new money into its bond market to support the irrational expectations of investors.
The chairman of South Korea's Financial Services Commission, Shin Je Yoon, wants Seoul to prepare for the possible failure of Abenomics.
That, according to the Maeil Business newspaper, includes bolstering Korea's foreign exchange reserves. Japan's stockmarket has been on a wild ride these last few months. It's just beginning.