Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Land Rover Discovery Sport Rattling / Knocking Sounds From Car Pillars - 25th Apr 18
China Takes the Long View on Gold-Silver... and So Should You - 25th Apr 18
Russia Buys 300,000 Ounces Of Gold In March – Nears 2,000 Tons In Gold Reserves - 24th Apr 18
Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - 24th Apr 18
CRYPTOCURRENCY MASTERCLASS #CRY90 - 24th Apr 18
UK Gambling Statistics - What the Numbers Say - 24th Apr 18
Chaos Capitalists Short Countries - How Chanos Got China Wrong - 24th Apr
Artificial Intelligence Defines the Political News Narrative - 24th Apr 18
Stock Market "Oops, They Did It Again" - 24th Apr 18
Fox in the Henhouse: Why Interest Rates Are Rising - 23rd Apr 18
Stocks and Bonds, This is Not a Market - 23rd Apr 18
Happy Anniversary Silver Investors! - 23rd Apr 18
The Hottest Commodity Play In 2018 - 23rd Apr 18
Stock Market Correction Turns Consolidation - 23rd Apr 18
Silver Squeeze, Gold Fails & GDX Breadth - 23rd Apr 18
US Economy Is Cooked, the Growth Cycle has Peaked - 23rd Apr 18
Inflation, With a Shelf Life - 23rd Apr 18 - Gary_Tanashian
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Japanese Governments Revenge On Its People

Economics / Japan Economy Nov 05, 2014 - 04:54 PM GMT

By: Raul_I_Meijer

Economics

I know I’ve written a lot about Japan lately, and that for some it’s been enough for a while, but still, what happens today under the no longer rising sun is going to have such repercussions worldwide that it would be foolish not to pay attention. Moreover, there’s something about what Bank of Japan Governor Haruhiko Kuroda said this morning that both perfectly and painfully illustrates to what depths, economically as well as morally, the country has sunk.


BOJ’s Kuroda Vows To Hit Price Goal, Stands Ready To Do More

Bank of Japan Governor Haruhiko Kuroda, who last week stunned global financial markets by expanding a massive monetary stimulus program, said the central bank is ready to do more to hit its 2% price goal and recharge a tottering economy. Kuroda stressed the BOJ is determined to do whatever it takes to hit the inflation target in two years and vanquish nearly two decades of grinding deflation.

“There’s no change to our policy of trying to achieve 2% inflation at the earliest date possible, with a roughly two-year time horizon in mind,” the central bank chief said in a speech at a seminar on Wednesday. “There are no limits to our policy tools, including purchases of Japanese government bonds .. “The BOJ shocked global financial markets last week by expanding its massive stimulus spending in a stark admission that economic growth and inflation have not picked up as much as expected after a sales tax hike in April.

Kuroda said while inflation expectations have been rising as a trend, the BOJ decided to ease to pre-empt risks that slumping oil prices will slow consumer inflation and delay progress in shaking off the public’s deflationary mind-set.

“In order to completely overcome the chronic disease of deflation, you need to take all your medicine. Half-baked medical treatment will only worsen the symptoms ..” While he stressed that Japan’s economy continued to recover moderately, Kuroda said falling commodity prices could be risks to the outlook if they reflected weakness in global growth.

The Japanese economy was hit hard in Q2, suffering its biggest slump since the global financial crisis after an April sales tax hike dented consumption, and is expected to rebound only moderately in the third quarter as the effects of the higher tax take time to wear off.

Kuroda stuck to his view that the pain from the tax hike will gradually subside, but warned that the BOJ must be mindful of how the higher levy could affect companies’ pricing power, particularly if household spending stagnates. On the yen’s plunge against the dollar after last week’s monetary expansion, Kuroda reiterated his view that overall, a weak yen was positive for Japan’s economy.

You would expect falling oil prices to provide the Japanese, like Americans, with some very welcome, even necessary, financial breathing room. But PM Abe and BoJ’s Kuroda will have none of it. And no matter how you look at it, there’s something at best curious about a central bank that decides to throw ‘free money’ at an economy BECAUSE it sees falling resource prices, which would supposedly make money available already.

What Kuroda in effect says is that he won’t allow the Japanese to profit from, or even feel the relief of, lower oil prices, because they can’t be trusted to spend it. The Japanese government and central bank have no confidence at all – anymore? – that people will spend the money which they save on gas, on something else. They expect for people to, exclusively, sit on those savings. And they’re probably right, which says plenty about how the Japanese people feel about their economy: there is no confidence left whatsoever, not in Abe, not in Kuroda.

Moreover, of course, many, the poorest, the indebted, simply won’t have any extra spending cash even if they do save a few yen on gas. For them, Kuroda’s policies are very damaging. Which further undermines their confidence, and makes more people sit on more money. This goes way beyond a central bank pushing on a string. This is the picture of the trust between a government and its people having been irrevocably broken. And Abenomics doesn’t repair that trust, it only damages it further.

The people don’t trust the government, and the government doesn’t trust the people. Neither thinks the other will deliver what it desires. And since it’s ultimately the government which hold the reins of power, it’s using those reins to throw the people under the bus.

Abe and Kuroda’s ‘logic’ is ‘if the people don’t do what I want them to do, why should I take them into account, or care about them’? The line of thinking is borderline psychopath.

Adding insult to injury, a beggar thy neighbor fall in the yen is supposed to be good for exports, even though that hardly pans out at all so far. It also, and more importantly, makes imported goods more expensive. In Abe and Kuroda’s twisted logic that should drive up prices, but in reality it means people buy even less than before, which accentuates deflation instead of ‘solving’ it. Who do you think Abe blames for this?

And the psychopaths are not done with their people. They not only control the monetary base through what is by now QE9 (not of which, just like in the US, reaches main street), they have also seized control of Japan’s pensions. The rationale is: we’re going to take their pensions and spend them in the casino disguised as the global stock markets, because that MIGHT give a better return that sovereign bonds, especially Japanese ones.

If there’s one thing that’s kept Japan more or less standing upright over the past 25 years, it’s that the vast majority of its wealth was invested domestically. No more. And you might argue this is Japan exporting its deflation across the globe, but at the very least that’s not what pension beneficiaries will experience. They will simply, when markets tumble, see their pensions vanish into thin air.

US Will Benefit Most From Japan’s Pension Fund Reform

U.S. assets will be the biggest benefactor of the Japanese Government Investment Pension Fund’s (GPIF) decision to more than double its target allocation of foreign stocks to 25%, analysts say. The changes to the $1.1 trillion pension fund coincided with the Bank of Japan’s shocking decision to ramp up stimulus on Friday, which sent global equity markets soaring.

“The shift for international equities going to 25% of pension fund holdings is fairly big news,” said Tobias Levkovich, chief equities strategist at Citigroup. “It establishes a new incremental buyer of shares and the U.S. should be a significant beneficiary,” he said. The overall contribution to non-Japanese stocks could approach $60 billion of new purchases, half of which could go to the U.S. by the end of 2015, said Levkovich, noting that stocks on Wall Street should start to feel the benefit this year.

“Foreign investors typically buy large cap stocks which have greater index impact,” he said. “Thus, one cannot ignore the possibility that stock prices jump above our year-end 2014 S&P 500 target on this news.” Other analysts agree. “It’s pretty realistic [that the U.S. will receive most of the benefit] if you look at where the Japanese feel comfortable investing their money,” Uwe Parpart, managing director and head of research at Reorient Financial Markets told CNBC.

“This is a pension fund making the investment they are not going to punt into small caps or anything of that sort, they need large, liquid stocks that over decades have had a reliable return,” he said. But Parpart is not convinced the inflows would make a huge difference to stock market performance. “$30 billion sounds like a lot of money, but stretched over a period of time it’s not going to move markets,” he said. “But obviously it’s a nice shot in the arm.”

Furthermore, an increase in the pension fund’s international bond allocation to 15% from 11% should boost demand for Treasurys, driving further inflows into the U.S., analysts at HSBC said in a note published Tuesday. Meanwhile, the GPIF will reduce its domestic bond allocation to 35% from 60%. “The BoJ’s increase in asset purchases should be more than enough to cover the aggressive reduction in Japanese Government Bond (JGB) holdings planned by the GPIF, allowing JGB yields to stay pinned down,” said Andre de Silva at HSBC.

So tell me, what do you think, is this still an attempt to fight – domestic – deflation, or has it become a revenge on the Japanese people for not doing what Abe ‘ordered’ them to do? Note that early this year, he said Abenomics would work if only the people believed it would.

In his view, they let him down. In their view, he’s an abject failure. He is. Unless the Japanese people get rid of Abe and Kuroda real fast, they’re going to cause a lot more destruction. We need to see this in the context of a society in which obedience is considered much more important than in the west.

In Abe and Kuroda’s eyes, the people fail, because they fail to obey their edict of increased spending. The people, too, have a hard time not obeying, but after 20 years of deflation, they find it too risky to go out and spend. That’s not just a deflationary ‘mindset’, as the powers that be would have you believe, it’s something much more real than that.

If the global markets start leaning on Japan, something that may happen any moment now because of its behemoth debt levels, the entire country could start going up in smoke. Abe has given signs of seeking to take the blame for his failures out on China, and the nationalist streak in the population may follow him to an extent, but it doesn’t look like there’s enough trust left.

In that regard, it’s undoubtedly for the better (though we don’t know who will succeed Abe). But it’s still a highly volatile situation that Japan finds itself in, with huge potential downside effects for the whole world because it’s such a large economy that’s failing here.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2014 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Raul Ilargi Meijer Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules