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Meanwhile In Japan...

Tyler Durden's picture





 

Two of the saving features that allowed Japan to internalize 30-some years of failed fiscal and monetary policy (and yes, not one, not two, but now 8 failed iterations of quantitative easing) and to offset one relentless deflationary vortex was i) its demographics coupled with an investing culture that favors deposits and bonds over equities, which incentivized its aging population to invest its savings into government bonds, and ii) its trade surplus which led to foreign capital flows to enter the country. Well, as far as i) is concerned, Japan may have reached its demographic limit, since as reported several months ago, Japan's pension funds are now not only selling JGBs to meet redemption and cash needs, but forced to do truly stupid things like investing in the riskiest of assets to generate a return at any cost. In other words, demographics will no longer be a natural source of demand for deficit funds. As for ii), well... here is what has happened with Japan's trade surplus status in recent weeks following the collapse in the country's foreign relationship with China.

In other words, so much for net exports also being a source of capital. Some more thoughts on this from Sean Corrigan of Diapason:

Far across the Senkaku Islands, Japanese money supply has been decelerating from its recent impressive lick, while small business confidence has plummeted below even the post?Fukushima trough. Meanwhile, the nation’s exports languish at levels first seen in 2004, thanks to the toxic mix of the fallout from the territorial spat with the Chinese and the general Asian weakness ? also evident this week in Singapore (IP ?2.5% YOY), Thailand (manufacturing output off 13.7% YOY to rest where it was in 2007), and the Philippines (exports off 9% YOY to stand no higher than in2005).

 

All this sufficed to bring about a record trade deficit of close to Y1 trillion in Japan itself last month, at which point it was threatening to swallow the large monthly investment income component whole and, hence, to restrict the growth of the capital pool on which the country so heavily relies.

 

Nothing daunted, after two decades of blue bottle?against?a?windowpane policy?making, the country is again to be dosed with the same old, ineffective, patent medicine as the BoJ prepares to increase its version of QE by a cool Y10 trillion ($125 billion), some of which will help fund the already over?indebted government’s imminent Y700 billion fiscal injection.

 

You would think they would long since have have learned the futility of what they are about; the fact that this has eluded them for all these years them should worry us greatly about our own masters’ willingness to draw the correct lessons on that grim tomorrow when their own programmes are undeniably seen to have failed. Can we not admit it is folly always to resort to the crude economics of a Krugman – the macroeconomic equivalent of the château generalship of the Somme – and to whine that we have only failed because we have not thrown enough money or lives into the fray.

And that's two birds with one stone. The only source of "capital" left - BOJ monetization. The only problem, of course, is that Japan already has well over 200% of national debt to GDP. And that's the smaller problem. The bigger problem: even the smallest increase in prevailing interest rates, and the entire Japanese house of cards topples. Recall these charts:

 

As well as this chart of sovereign interest to revenue, in which Japan is also an outlier:

And certainly this chart showing Japan's straight diagonal line of debt/GDP:

....

....

....

But how many have seen this chart showing global sovereign debt as a percentage of total government revenues? 

So - is Europe still the biggest unresolved issue as conventional wisdom would have everyone believe? Or is Japan finally preparing to reclaim its rightful place as the straw that broke the Keynesian camel's back?

 


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Sat, 10/27/2012 - 18:51 | Link to Comment Atomizer
Atomizer's picture

Japan: We want are yen carry trade back Bitchez.. LOL

Sat, 10/27/2012 - 19:04 | Link to Comment PersonalRespons...
PersonalResponsibility's picture

Yeah, this has nothing to do with Fukushima and that the educated are now evacuating Tokyo. 

Ayo, you betta flee Hops

 

Sat, 10/27/2012 - 19:12 | Link to Comment Skateboarder
Skateboarder's picture

That last chart... quite an asskicker. Actually haven't seen that one before - puts more things into perspective. Domo arigato, Tyler-san.

Sat, 10/27/2012 - 19:34 | Link to Comment SWRichmond
SWRichmond's picture

As for ii), well... here is what has happened with Japan's trade surplus status in recent weeks following the collapse in the country's foreign relationship with China.

I have been saying for years, right here on ZH, that the real value of China's USD surplus is the threat it represents to Japan, to wit: suppose China sells USD and buys Yen?  The credible threat is all that is requred.

Already there is movement towards an Asian trading block, around the yuan and centered on China.  The assertion of Chinese naval power in the region is a natural consequence.  Isn't it?  This is a lever to get the Japanese to slowly evict the US.

Sat, 10/27/2012 - 20:06 | Link to Comment knukles
knukles's picture

Many years ago I had stated that the Japanese model was that which we and by extension the rest of the "developed west" were following.
My opinion has not changed.
Period.

My detractors claim to not remember.
Remember, 2.5% 30 year treasury forecasts?
Along with a bias toward commodity and PM's?
(And a whole bunch of you folks are still running OPM.... Hows' your business losses goin' these days? ... And to another few of ya', sorry ya' had to shutter your doors...)
Fuck 'ya.
Eat iPads and die.

Sat, 10/27/2012 - 20:23 | Link to Comment malikai
malikai's picture

In a rational world, Japan would have learned its lesson 15+ years ago and would have actually recovered more than 10 years ago. Even if they still made the mistake of listening to Benocide.

This is no rational world.

Sat, 10/27/2012 - 20:49 | Link to Comment Manthong
Manthong's picture

SMF

(That's AMF with a sayonara instead of adios)

Sat, 10/27/2012 - 21:25 | Link to Comment Precious
Precious's picture

In preparation for doom, the Japanese practice marching.

Sat, 10/27/2012 - 22:01 | Link to Comment Urban Redneck
Urban Redneck's picture

Perhaps they have some gold stored at 33 Liberty that they could threaten to demand back if Benocide won't help them out with a QE^Yen

Sat, 10/27/2012 - 22:31 | Link to Comment Whiner
Whiner's picture

These are the men of the matrix.

Sat, 10/27/2012 - 22:20 | Link to Comment nmewn
nmewn's picture

"My detractors claim to not remember."

Fucking awesome, the time is coming, the cognitive dissonance is really amazing now...I really don't want to live beside and interact with these people, but I must...but they have to live beside me too...lol. And I plan on grinding their face into it at every opportunity.

I'm sure this makes me a bad man in their eyes, I wouldn't have it any other way ;-)

Sun, 10/28/2012 - 00:27 | Link to Comment patb
patb's picture

do you mean sell yen and buy dollars?  if Japan is headed into a structural trade deficit,  pressure on their FX and dollar reserve

will drive interest rates up

Sat, 10/27/2012 - 19:43 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Last chart above clearly puts Japan in the lead as least likely to GETS PAID!!!

WTF? Haven't they ever heard of one Ben S. Bernanke, nor of his many pearls of wisdom? C'mon, BOJ, get with the program! Print A LOT faster, bitchez.

 

“The government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as [much fiat] as it wishes at no cost.”

/sarc

 

Krugman, were he still in the BUSINESS of advising companies such as Enron, would no doubt advise Japan to immediately launch an invasion of mainland China for zeeee stimulative effects...

 

Helicopter Ben Bernanke: The Problem With QE1, QE2, QE3 and QEfinity

 


Sat, 10/27/2012 - 22:25 | Link to Comment nmewn
nmewn's picture

We need more broken windows (just not in Krugman's house) to relieve the suffering economy!

Booo fucking yaaa!

I'm planning a trip to the Carib myself...around Krugman's "beach pad" who's up? ;-)

Sat, 10/27/2012 - 19:09 | Link to Comment Frastric
Frastric's picture

Harakiri bitches! And it won't just be confined to Japan...

Sat, 10/27/2012 - 19:14 | Link to Comment Skateboarder
Skateboarder's picture

Isn't that for people with honor and shame?

Sat, 10/27/2012 - 21:30 | Link to Comment ozziindaus
ozziindaus's picture

No that would be Bukaki....without the honor of course

Sun, 10/28/2012 - 04:03 | Link to Comment lolmao500
lolmao500's picture

Or Bukake?

Sat, 10/27/2012 - 18:55 | Link to Comment schatzi
schatzi's picture

"Or is Japan finally preparing to reclaim its rightful place as the straw that broke the Keynesian camel's back"

 

Or it is a showcase of how long this absurd game can be maintained. This would mean a very long way yet to go for the other developed and indebted nations in a stagnative environment over years.

Sat, 10/27/2012 - 19:18 | Link to Comment Dr Benway
Dr Benway's picture

Japan was only able to carry on this farce so long because the rest of the world were not there yet (and due to some cultural idiosyncracies). Now everyone is on the precipice, chained together, when one topples all will be pulled into the abyss. 

Sat, 10/27/2012 - 20:32 | Link to Comment schatzi
schatzi's picture

Absolutely agree and the major difference from 15 years ago. Still... I sometimes am amazed how well this debt carousel keeps on running. It defies my common sense and understanding of economics. It really all hinges on the trust and belief in the fiat currency system by the populace. Most are only aware of this alternative. They define their lives on consumption and credit cards. It requires a paradigm change amongst the broad population for the debt system to become endangered.

Sat, 10/27/2012 - 19:05 | Link to Comment swissaustrian
swissaustrian's picture

The 1 quadrillion question is: How long until Mrs. Watanabe pees her pants and sells her JGBs for sake, sushi or gold?

Sun, 10/28/2012 - 00:27 | Link to Comment patb
patb's picture

she doesn't want sake or sushi, it's radioactive

Sat, 10/27/2012 - 19:09 | Link to Comment Dick Fitz
Dick Fitz's picture

IF, and it's a more likely scenario now due to the dispute with China over insignificant islands, but IF Japan began to bleed investment and see hyperinflation it would quickly spread to all developed nations. We are too hyperconnected financially, and a meltdown there would cripple banks in the EU, US and China as well.

schatzi is right, though- we don't know how long these fuckers can prolong the great game. The slow grind could last decades, but history shows that once it starts it comes so fast that most are caught unaware.

Sat, 10/27/2012 - 19:10 | Link to Comment Yen Cross
Yen Cross's picture

  Japan is in "SELF DISTRUCT"mode.   A beautiful island nation, without leadership.

 One day, we will wake up and the yen will be (  104 to the USD). 161 retracement off the 84 high.

Sat, 10/27/2012 - 19:11 | Link to Comment This just in
This just in's picture

OOOh, Rooks Reary Ugry.

Sat, 10/27/2012 - 19:28 | Link to Comment oak
oak's picture

There are so many problems in Japan from every aspect. It is dying, sadly

Sun, 10/28/2012 - 00:56 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Yes, alas, that was my impression in Osaka last May.  Very sad.

Sat, 10/27/2012 - 19:33 | Link to Comment LeisureSmith
LeisureSmith's picture

Losing face when economic reality rips it off got you down?  QE. Seppuku with a bamboo sword is the way to go.

Krugyamaguchi.

Sat, 10/27/2012 - 19:42 | Link to Comment Heyoka Bianco
Heyoka Bianco's picture

Just goes to show you, if you need exports to survive, you better be the biggest dick on the the block, or you're the bitch when it's time to hit the showers.

Enjoy that image.

Sat, 10/27/2012 - 19:47 | Link to Comment 123dobryden
123dobryden's picture

funny to hear the same old story all these years, just bet if you think this is true :).........the only unimportant details everyobe is missing that people ARE WORKING there productive jobs, unlike here in the west, thats WHY

Sat, 10/27/2012 - 19:53 | Link to Comment Yen Cross
Yen Cross's picture

Desperation, equals 'irrational acts'.

Sat, 10/27/2012 - 19:55 | Link to Comment Atomizer
Atomizer's picture

Buy me sucker.

48350 Fremont Blvd Fremont, CA 94538

 

Then they can remonetize their losses and purchase  (47488 Kato Road Fremont, CA 94538)

 Available for Sale

 

Just remember, Seagate already bided. With this new purchase, the Japanese economy will be hopping in no time. New debt creates growth, yeah know!

Sat, 10/27/2012 - 19:58 | Link to Comment moskov
moskov's picture

So much for the top dog of Asia who wants to punish and contain China for TPTB. And I was surprised after all these Fukushima tragedies, Japanese politicians would have use their people's pension to 'purchase' a few dam rocks while BOJ is QEing non-stop.

The most funny thing is Japanese are proud of it. Stockholm syndrome at its classic level

Sat, 10/27/2012 - 20:07 | Link to Comment VonManstein
VonManstein's picture

Ok Tyler i have an article (some rambling with charts) that i would like to send to you guys. Whats is de address?

 

Sat, 10/27/2012 - 20:13 | Link to Comment tictawk
tictawk's picture

Wait till Japan starts to bomb us with bonds.  Dash for cash.  Another Japanese Pearl Harbor.  Bonds away.... and the yes the whole house of keynesian cards crumbles. 

 

Sat, 10/27/2012 - 20:32 | Link to Comment Yen Cross
Yen Cross's picture

Japan (in fact) holds just over $1trillion in U.S. bonds. #2  just behind China.  That bond bubble is getting "volcanic"?

  The " pop off top" always comes from the most "unusual" suspect.

Sat, 10/27/2012 - 20:50 | Link to Comment Kimo
Kimo's picture

Selling US Treasuries to bring home the Yen will drive the value of Yen up.  Not so good for exporting, which Japan is so desperately wants, eh?  So the sell the Bonds bomb, will land on Tokyo.  Don't hold your breath....

Sat, 10/27/2012 - 21:51 | Link to Comment ozziindaus
ozziindaus's picture

Someone gets it.

http://www.livestream.com/theeconomist/share?clipId=pla_36cbc150-b893-4a...

I recommend you watch all of Hugh's interview but skip to 16.00 for his same view on China Bonds

 

Sat, 10/27/2012 - 20:16 | Link to Comment suteibu
suteibu's picture

"...an investing culture that favors deposits and bonds over equities"

And now...mattresses.

Sat, 10/27/2012 - 20:31 | Link to Comment MarkTwainsMustache
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Also, I think Morgan Stanley put out a piece this past week that showed ~25% of Japan bank assets were JGBs. 

Sat, 10/27/2012 - 21:12 | Link to Comment earleflorida
earleflorida's picture

the 'chess master' that never was?--

'kissinger & nixon' - 'the quintessential un`realpolitik duopoly'... although henry [heini?] never was an elected official, he served as the most influential, and instrumental foreign policy headmaster ever [the fatman is own'd by? `de`]-- always at the helm of his? dictatorial post, that still is in covert-stealthy operational existence 'mo' at present in postwar america?! 

timing:  August/1971 __  Nixon's Shock

            February/1972 __ 1st U.S. President to China

motive:  create a wedge between communist ussr and  communist china? [at least that's the fallacy?]

final analysis/ results:  two scores hence..., china is soon too be the nwo's superpower du`jour, and russia is back in the USSR!

thankyou henry for fucking japan... perhaps the best friend in southeast-asia the u.s. will ever have had?!

http://www.gilderlehrman.org/history-by-era/1945-present/seventies/essays

Sat, 10/27/2012 - 21:29 | Link to Comment suteibu
suteibu's picture

I would add the 1985 Plaza accord.  And during the 2+ decades since, the US has turned its attention to China to avail itself of China's comparative advantages, leaving Japan feeling like a binge weekend whore. 

Of course, the US still wants Japan to be America's military beachhead should things get testy with China. 

As for Russia, Obama will have a lot "more flexibility" after the election.

Sat, 10/27/2012 - 21:49 | Link to Comment egoist
egoist's picture

That last drop in trade...how confident are you that that is due to China?

There's something about Japan - they didn't go loony during the quake; they do make premo cars; they have a lot of science / engineering stock in their culture. I know the numbers don't lie and things look really bad, but I can't say they're doomed.

And, as is kind of implied by somebody above, they have a poison pill for the rest of us.

Sun, 10/28/2012 - 00:31 | Link to Comment patb
patb's picture

what screws them is the negatve birth rate.  1.3 babies/female headed to 0.9.

 

 

2 generations and there wont be any japanese babies.

Sun, 10/28/2012 - 06:30 | Link to Comment Peterus
Peterus's picture

Without the Ponzi social security scheme this would not be problem in itself. Humanity can go on with much less ... humans. Progress would slow down, with less people thinking and innovating, but natural resources would be "less scarce".

BTW Japan is so much not a place to raise children that this is nothing suprising. Work all the time, than mandatory socialisation with collegues - there's barely any time left to be with this kid. All this child is cramming, participating in sport clubs etc.

Sun, 10/28/2012 - 06:46 | Link to Comment Diesel Seven
Diesel Seven's picture

I don't share your optimism. I don't see the "put" for Japan. If you are referring to the selling of their US Treasury holdings, as long as there is a petro-dollar, the Fed will buy them back, as we are in the same situation as Japan--we're at very low interest costs and cannot afford higher rates. Yes, $1.1 trillion is a lot to buy, but nothing that a QE Infinity+1 couldn't handle at $100 billion per month rate.

As for Japan's comparative advantage in education and technology, China is eatting away at it every day--as time goes by, China will catch up. The sad fact for Japan is they are relatively natural resource poor and their aging demographics would require the smaller young generation to achieve efficiency gains that are likely not realistic.

Sat, 10/27/2012 - 21:59 | Link to Comment q99x2
q99x2's picture

Pretty neet that Greece got sandwiched between the US and Japan. At least we are third at something.

Sat, 10/27/2012 - 23:53 | Link to Comment dondonsurvelo
dondonsurvelo's picture

Much of Japan's recent trade deficit comes because of the need to import energy to replace the shut down nuclear reactors.  Start up the reactors again and they will cut the trade deficit dramatically.  The spot price for December LNG is $13.70mmbtu.  That coupled with high oil prices has taken Japan from a trade surplus to a trade deficit.

Sun, 10/28/2012 - 00:53 | Link to Comment neutrinoman
neutrinoman's picture

Japan will complete its burn-through of foreign currency reserves within the next two years, nuclear reactors or no. The BOJ will hold the line on interest rates, so it's the yen that will take the brunt of the Japanese financial crash.

That, and the absurdly inflated reputations of certain Keynesian and Princetonian professors ....

Sun, 10/28/2012 - 03:53 | Link to Comment bushwarcrime
bushwarcrime's picture

Oh I bet we see 150 to the dollar by 2013 and 250 by 2015.

Sun, 10/28/2012 - 03:58 | Link to Comment lolmao500
lolmao500's picture

Japan will be fucked for at least another generation if not more. Their weird mentality as a culture will make them really reluctant to impose the hard changes needed...

If you live in Japan... get the hell out as soon as you can.

/and unless Japan publicly deploys nukes, they will likely get invaded in the future

Sun, 10/28/2012 - 06:45 | Link to Comment TPTB_r_TBTF
TPTB_r_TBTF's picture

 

  so, Japan needs a war yesterday?

Sun, 10/28/2012 - 11:35 | Link to Comment AbbeBrel
AbbeBrel's picture

Just wait until the famous Japanese housewife-traders write to the Japan Post Bank to ask about their savings, and get back their letter stamped "Addressee Unknown".

Japan Post Bank: In Japan, the post office was the world's largest savings bank with 198 trillion yen (US$1.7 trillion) of deposits as of 2006,[7] much from conservative, risk-averse citizens. The government was criticized for using these funds to engage in uneconomical infrastructure projects—what in America would be called pork barrel spending. The state-owned Japan Post Bank business unit of Japan Post was formed in 2007, as part of a ten year privatization programme, intended to achieve fully private ownership of the postal system by 2017.  [Wikipedia]

Sun, 10/28/2012 - 14:21 | Link to Comment JamesBond
JamesBond's picture

What Is Sovereign Debt?: Sovereign debt is how much a country's government owes to outside creditors. Also known as public debt, "sovereign" is used more often because it is another term for a country or nation. Sovereign debt is an accumulation of a government's annual deficits. Therefore it shows how much more a government spends than it receives in revenue over time. ======

Sun, 10/28/2012 - 21:17 | Link to Comment Zero Govt
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"...and yes, not one, not two, but now 8 failed iterations of quantitative easing..."

Never a lesson lost on a central bwanker ...sharpest tools on the planet those muppets

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