Abenomics Is Back: Shinzo Abe Returns As Japanese PM Following Crushing LDP Victory

Tyler Durden's picture

To little surprise, and confirming the pre-election polls, Shinzo Abe, who previously was Prime Minister of Japan from September 2006 to September 2007, has just won a second chance in today's Japanese election, following a crushing defeat by the LDP and the concession moments ago of challenger Yoshihiko Noda (who will no longer be watchim\ng, watching, watching). As BBC reports "The LDP, which enjoyed almost 50 years of unbroken rule until 2009, is projected to have an overall majority in the new parliament. Mr Abe has already served a Japan's Prime Minister between 2006 and 2007. He campaigned on a pledge to end 20 years of economic stagnation and to direct a more assertive foreign policy at a time of tensions with China. He is seen as a hawkish, right-of-centre leader whose previous term in office ended ignominiously amid falling popularity and a resignation on grounds of ill health. But Japanese media project big gains for his LDP who they say are on course to win between 275 to 310 seats in the 480-member house." In other words, with Japan's sharp turn to the right, this time will be different, and Abe will succeed where previously he failed miserably, or so the people, who have long abandoned any hope of an economic recovery, dare to hope.

What happens next? One word: Abenomics:

By contrast, Mr Abe has promised more public spending, looser monetary policy, and to allow nuclear energy a role to play in resource-poor Japan's future despite last year's nuclear disaster at Fukushima.

 

But economists say there is little new in Mr Abe's policies, or 'Abenomics' as they have been called. They have been adopted by previous LDP governments without successfully renewing the Japanese economy.

 

Mr Abe has also called for a tough stance on a territorial row with China over islands in the East China Sea that both countries claim.

 

But neither of the main parties fully convinced voters. Several new parties contested the poll and the right-leaning Japan Restoration Party founded by the mayor of Osaka, Toru Hashimoto. could win as many as 50 seats.

 

And the nationalist former governor of Tokyo governor, Shintaro Ishihara, whose bid to buy disputed islands provoked a fierce diplomatic showdown with China, may also have won a seat in parliament according to Japanese media.

One thing appears certain: Japan, which is the grand Keynesian experiment in keeping bond yields in check even as sovereign debt/GDP is approaching 250%, may have some trouble with the coolness and calmness of bond investors now that Abe has even threatened with making the BOJ a branch of the government, setting 3% inflation targets, and outright monetizing the debt (without even the courtesy of semantical coverage).

In fact, as Bloomberg summarizes, Abe is the worst premier for JGBs since 1994:

Shinzo Abe, the front-runner to replace Yoshihiko Noda in elections this weekend, oversaw a 1.2 percent gain when he was in office for a year through September 2007, the least since a loss in the two months that Tsutomu Hata was in power in 1994. In the 15 months under Noda’s watch, JGBs returned 3.2 percent, the most among the six successors to Junichiro Koizumi, who stepped down in 2006, data compiled by the European Federation of Financial Analyst Societies and Bloomberg show.

 

“Noda has been friendly to the bond market, and he literally risked his political career for Japan’s fiscal consolidation,” Shunsuke Doi, a market analyst in Tokyo at SMBC Nikko Securities Inc., one of the 25 primary dealers obliged to bid at government debt sales, said on Dec. 12. “An Abe administration would be an unfriendly environment for bonds, and super-long term yields are more likely to remain high in years ahead.”

 

Longer-term bonds are signaling concern about Japan’s fiscal health. The yield premium on 20-year JGBs over 10-year securities climbed to 99 basis points on Dec. 5, the highest since 1999. That compares with a gap of 68 basis points for similar maturity U.S. Treasuries.

 

Abe’s September 2007 statement for resignation from Japan’s top office made no mention of his economic record except for a growth strategy “centered on innovation and openness.” It listed the upgrade of Japan’s defense agency to a ministry-level position among his achievements.

 

Japan’s debt has climbed to 237 percent of its annual economic output, the most in the world, compared with 183 percent in 2007 during Abe’s previous tenure as prime minister, according to data estimates by the International Monetary Fund.

The fact that something is rapidly changing in Japan can be confirmed by the following comparison of Japan vs US 10s30s, where suddenly Japan is getting far more concerned about the long end even compared to the country run by Blackhawk Ben:

 

and stand alone... JGB 10s30s at record steeps...

"Not so honest" Abe's return deserved a special mention in the latest Privateer letter by Bill Buckler:

The man of the hour in Japan right now is Shinzo Abe, the leader of the Liberal Democratic Party (LDP) and the man almost universally expected to become the new Japanese Prime Minister on December 16. Mr Abe has been the Prime Minister before - as recently as 2006. His resignation in 2007 ushered in the modern era of “annual governments”. If Mr Abe gains the top spot this time, he will become the sixth Japanese Prime Minister since he last held the job in 2007.

 

The policies Mr Abe is selling, the ones which are expected to lead to his electoral victory, have been dubbed “Abenomics” by the Japanese media. Mr Abe wants to further increase what is so politely called “monetary easing”. He also wants to embark on yet more infrastructure projects while at the same time pushing the exchange value of the Yen down to foster the “competitiveness” of struggling Japanese companies. Finally, Mr Abe is expected to put pressure on the Bank of Japan to start DIRECTLY monetising Japanese sovereign debt. He has gone so far as to suggest that the 1998 law which ostensibly granted the BoJ independence from government be rewritten or simply scrapped.

 

If there is any political prescription which can finally push Japan over the brink and bring on a dreaded spike in Japanese interest rates, it is the one being pushed by Mr Abe. Any increase at all in the borrowing rates being paid by the Japanese government would be instantly catastrophic. When, not if, that happens in Japan, it will be the end of the line for all those advocating stimulus via the printing press all over the world. If Mr Abe follows through on his policies after December 16, it’s only a matter of time.

Buckler is spot on, however the Japanese people are hardly aware of these nuances, and hardly aware that any ongoing blow out in bond spreads as Abe's targeted inflation goal of 3% is hit, will achieve two things before any vaunted "recovery" in the economy comes:

i) all Japanese banks and insurance companies will go promptly bust and require a massive bailout, but by Japanese citizens (most likely to be footed once again by the Chairman in exchange for the recent Japanese favor in buying US TSYs, in a time when China has decided to boycott any such purchases), and

ii) all Japanese tax revenues will go merely toward covering the cash interest on the government debt, as the following two charts summarize quite well:

Sovereign debt/government revenue. Japan is at, oh..... 2000%. Can you say living on the edge?

Total Japanese debt, which at last check was breathing on JPY 1 quadrillion:

And once the Japanese domino falls, and Kyle Bass is finally vindicated, the entire house of Keynesian cards will promptly follow.

Congratulations Japan: you may have just been the first to push the grand reset button.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Aziz's picture

Dishonest Abe goods news for Kyle Bass!

Vampyroteuthis infernalis's picture

Fire up the printing presses! Time to go long cotton.

Clint Liquor's picture

Kyle is right. Europe is meaningless, keep your eyes on Japan.

DoChenRollingBearing's picture

Japan's problems are near-insoluble.  Fukushima, demographics and tension w/ China.  Even Korea is making real in-roads vs. Japanese industry.  I presume the reason we do not hear much about Japan is that few in our media speak Japanese and the Japanese culture (unlike our own) does not loudly hype itself...

***

Also, IIRC, the US Mint stops producing pennies and nickels early in 2013.  Kyle was again ahead of the curve.  Get your nickels now!

caconhma's picture

Japanese are very stupid by getting into a fight with China.

For the last 67 years, Japan leaders have prostituted their own national interests serving to America. As for Chinese, they have old scores to settle with Japan. The demographics and geography are not on Japan side.

As for China, their internal politics is desperately needs strong nationalism. China is a classic fascist state but without a National Socialism component. It has to make this nationalistic transformation; and a fight with Japan will be quite welcome by the Chinese leadership.

 

 

 

EnslavethechildrenforBen's picture

China and Japan are one and the same. All countries are one. It's the Bankers verses the Slaves. Globally. They just make it appear that there is regional conflict to perpetuate the illusion. It's the money printers exchanging toilet paper for wealth. The people slave their entire life for a handfull of toilet paper and the wealth spend their entire life enjoying all the wealth. That's a fair system.

Gordon Freeman's picture

Right--this will be the time everything goes poof!  TD writes the same old shit every time some politician farts...

LawsofPhysics's picture

Left... right... left... right...  the japanese have always been pretty good at marching and  taking orders.  Some things never change.

tip e. canoe's picture

found on the underside of a bottlecap of a magic hat #9:

History is all Reruns

suteibu's picture

Right...and the Americans are not also captured by the left/right paradigm?  Like the sheep calling the sheep, sheep.

LawsofPhysics's picture

One of the problems with having any sort of productive discussion these days is that people can't seem to stay focused.  No shit the americans are also captured by the corporatists left/right paradigm.  The world is, so what is your fucking point?

The americans are fairly well armed and have a significant population of battle-hardened veterans from endless wars.  Tell me, do you see this as a problem or a resource for further discussion sheep?  Japan is not the U.S., from many standpoints.

suteibu's picture

Well-armed Americans don't seem to be doing much except following orders.  And, yes, the US is much different than Japan in ways both good and bad.  However, the direction the Americans are taking would draw only from the bad in Japan.  My point is that pointing out Japan's problems that are also America's problems seems a bit shallow and useless.  Fix your own problems first.

LawsofPhysics's picture

America has the resources to fix it's problems, providing an adult conversation can be had.  Japan, not so much.  All economies are local and my local employees and economy are doing quite well.  

I certainly hope you are not an american or part of the E.Z. with that attitude.  If you think America is beyond fixing, you have the freedom to leave.  Same for the E.Z., you are more than welcome to get the fuck out.  That's my point.

suteibu's picture

LOL.  You're awfully big on having "adult" and "productive" discussions which seems to mean accepting American hubris as fact.  America has many resources, none of which are being used to solve its economic and social problems.  Instead, they have been used to make war, and enemies, all over the world all financed by future generations of increasingly less-free America.  Perhaps you are too close to the trees to see the forest.  At the least, you seem content with the direction because your local economy is chugging right along (this is common across Japan, as well).

As for leaving the US or EZ, I would bet that more than a few will leave both to escape the loss of freedom and higher taxes in the coming months and years.  And, since America's guns are likely to be taken soon, what will all of you formerly well-armed patriots do to protect your children's future?

As for "getting the fuck out," you control nothing, especially who gets in or out.  Stop being an arrogant blowhard.

LawsofPhysics's picture

I think you and I are on the same page, the point is to grow a pair of balls and stay and fix it dipshit.  Otherwise the global cabal will simply take the remaining resources and capital.  Your choice as much as mine.

suteibu's picture

You just can't stop with the personal attacks, can you?  Is this the American definition of an "adult" conversation?  Okay, I'll play.  What are you doing to fix it, shithead?

LawsofPhysics's picture

Already have, and continue to invest in local infrastructure and renewables, have removed as much of my wealth from the paper system as I can.  Have educated many of my employees on doing the same.  We have started two land trusts (so far) that our farming co-op manages.  Many of us are veterans and we keep the best produce local. We do still sell some internationally, but that may change should the U.S. go tits up.  I really wish local medical providers would start forming their own co-ops, I know of some in Utah, but this would solve most of the healthcare problem, which is purely administrative paper-pushing bullshit.  Doctors are smart people, they are capable of doing the paperwork themselves.

I'd continue if I didn't have to run, grow up already.

StychoKiller's picture

The Medicos in my local area tried to form an association/co-op, but were shutdown by the FTC (restraint of trade/monoplositic, etc).  Solutions can be found, PROVIDED the Federal Govt keeps their big nose(s) out of yer bidness.

juslen's picture

Resources won't fix our problem, they won't hurt us however. Once the dollar is destroyed, those resources will either be too expensive to extract from the ground or they will be exported to China. What remains to be seen is whether China will own the companies that end up utilizing those resources. You clearly understand that Russia has massive a mounts of natural resources yet for centures they were too damn poor to do anything with them. That will be the fate of the United States in due time.

caconhma's picture

LawsofPhysics

You are 100% correct. One high society Japanese lady told me: "We are a Nation with a slave mentality". 

babylon15's picture

This is going to end very well.  Printing money is surely going to get the young people to start having babies again.  The same party that drove birth rates down to their lowest levels in human history surely knows how to reverse this.

caconhma's picture

Don't forget that a half of Japan is terribly radioactive.

Super Broccoli's picture

Good news, let's print, buy and build weapons and wage a war to get us all out of that depression !

Rainman's picture

Idiots ! they shoulda recycled the PM dude from July '03....the only year the debt went down.

suteibu's picture

Koizumi merely passed the debt to the prefectures.  He didn't stop the slow ride.  He was also the one who forced the BOJ to start printing.  He got out before his policies took hold leading us to where we are today but which move effectively made him a legend, undeserved as it is.

Cunnial's picture

Well be that the case we should all be very excited by this election victory. Come on Abe you can do it!

centerline's picture

Planet of the Abes.

JamesBond's picture

america seems poised to imitate japan's political structure...

japan has numerous political parties that win seats of political power.  soon, the dam will

break in the states and numerous parties will emerge  to challenge the big two

jb

stinkhammer's picture

do it gangnam style!

lizzy36's picture

Hope and Inflation.

2013 - 2/20 strategy.

Pretorian's picture

This is the event of 2012 according to me. Now all watch print press Made in Japan.

Orly's picture

Sell the news...

RobotTrader's picture

Looks like Uncle Abe is going to adopt a full-blown Krugman-style economic recovery plan:

 

1) Print whatever it takes to stop deflation

2) Buy whatever you need to get the economy and stocks moving back up

3) Don't stop until unemployment is under 4% or inflation is over 6%

4) Monetize all bond issuance to keep interest rates low forever

5) If inflation creeps up or if the currency gets too low, then just start "Jawboning" about "one way markets" in order to spook the Algo/Igor/Robo wildebeest herd to start running in the other direction.

Basically a supercharged exact replica of Ben Bernanke's "Perpetual Motion Machine" model, which has already been proven hands down to be the the most successful in financial history.

Central Banking is now so easy.  Everyone will follow Bernanke's model and we'll enjoy the greatest global economic boom in 25 years.

Orly's picture

Abe's jawboning has been solely responsible for the plunging yen over the past several weeks.  But no one takes into account that:

  • He is actually powerless in regard to monetary activity as that role belongs to the Bank of Japan and Governor Shirakawa has already essentially told Abe to back off.
  • Abe's jawboning has an exponentially shorter half-life than the Fed's QE programs.
  • Any new program to be undertaken by the BoJ will take months to implement and markets don't wait that long for action.
  • The coalition party set up by the LDP and others still doesn't have the 320 seats required to over-ride any bill rejection by the upper house of the Japanese legislature.
  • The populace wasn't exactly thrilled with the idea of scary money-printing and unleashing the inflationary drgaon, as a full 40% of voters went into the booth as "undecided."

It's going to be a tough row to hoe for Mr. Abe, especially since his biggest weapon- his mouth- has already cried wolf several times and the impact of those statements is waning considerably.

The USDJPY pair is making a cup with handle formation on the Weekly chart and it is indicating a pull-back in yen crosses that could be sharp in nature, especially in the thin trading volume of the end of the year.

Sell the news.

:D

suteibu's picture

As I mentioned below, Shirakawa's term is up in April.  Abe can name someone else who will do his bidding.  Also, the LDP and Komeito have enough votes (min 320) to control the agenda and have said they will form a coalition.  So, you're wrong.

Orly's picture

At my last count, the coalition parties had 305 seats. However, that has since changed...

http://www.forexlive.com/blog/2012/12/16/japans-ldp-back-in-power-with-two-thirds-majority-with-ally/

So, you're right.  I'm wrong.

Either way, April is a long way off and there will be market forces that neither Abe nor anyone else can do much about.  It is going to be an interesting ride.

:D

suteibu's picture

As I asked earlier, What will the BIS tell Shirakawa to do?  He  might be willing to appease Abe now in order to keep his job for the long term which, for Abe, has a half-life of about 10 to 14 months.

Yen Cross's picture

The BoJ policy isn't dictated by the Bank of International Settlements?

suteibu's picture

Is that a question?  Shirakawa sits on the Board of Directors of the BIS.  You don't think those bi-monthly secret meetings among the central bankers has any effect on Shirakawa's BOJ policies?

Yen Cross's picture

Who cares? It could be GOD! The BIS is a giant International clearing house/PERIOD! You putting the cart in front of the horse.

 BoJ MoF monetary policy isn't dictated by BIS! There, now did it sink in?

suteibu's picture

LOL.  Calm down.  No reason to get excited.  It's almost as if you don't want it to be true that central bankers meet in complete secrecy every two months.  What do you think they talk about, the weather? 

Why do you think the Japanese want to take back control of the BOJ, because they don't like Shirakawa-san?  He will most likely be gone in April anyway.  BOJ independence only means independent from the Japanese, not independent from the central banking system.

Yen Cross's picture

 Central Bankers can do weekend Bath House get togethers, for all I care. In principle I agree with you... Japan is the 3rd largest economy on Earth. Japan is so soaked into the global monetary system via it's endless interventions and Qe schemes it's pathetic.

  No matter who replaces Shirakawa, the dice were cast over a decade ago. It's no secret that central bankers are flooding the world with paper. BIS just moves the paper for them.

suteibu's picture

"BIS just moves the paper for them."

 

Right.  Which is why the BIS is involved in the following.

"Promoting monetary and financial stability is one key objective of the BIS. Bimonthly meetings of the Governors and other senior officials of the BIS member central banks to discuss monetary and financial matters are instrumental in pursuing this goal. The standing committees located at the BIS support central banks, and authorities in charge of financial stability more generally, by providing background analysis and policy recommendations.

The committees are:

Note the "policy recommendations." 

Yeah, they just shuffle papers and Shirakawa's directorship means nothing.  The MoF is totally in control.

"

Yen Cross's picture

Every one of those • is about moving paper/ BIS just moves paper, it doesn't set policy. Those are all meetings to co-ordinate central bank policy. BIS executes the policies/co-ordinations of central banks.

  BIS does not set policy/

 

StychoKiller's picture

Yet, ALL central banks are printing like madmen!  If there's no policy direction coming from the BIS, where's it coming from?

Orly's picture

I don't see that there is much they can do besides go begging to the Fed for some relief.  There are major demographic problems, a new recession driven by fewer exports, which has been driven by a sky-high yen.

Nothing has changed, essentially, and with any new reduction in risk appetite, the yen goes higher against all the major pairs.  The only thing that the BoJ can do is to make the yen no longer a safe-haven or reserve currency.  If they try that, they may very quickly come to regret their actions.

The only way out is through back-door machinations, such as regional contracts that would have to be cancelled or taxing repatriation funds in a major way to keep new money out of the yen, striking FX swaps with the Fed, etc.  But, as it is plain to see, these ideas carry very long-term consequences that would do more harm than good.

If all else fails, they can always simply give away their luxury cars to boost imports and movement for re-stocking.  They are in a hard box and it is going to be very difficult to get out without harming something permanently.

 

suteibu's picture

Thank for your well-reasoned comment.  Japan is in a world of trouble and can no longer depend on the global economy to mask its problems (as it has for the past two decades).  It is doubtful that a policy response by the government can overcome its ultimate collapse.  We certainly are in interesting times.

Yen Cross's picture

Japan will continue on the same path, Eg; printing yen and purchasing offshore assets. It's working, as the yen has moved over 7 big figures since September.

JamesBond's picture

Abe wants the central bank to double the BOJ inflation target from 1% to 2%

 

jb

suteibu's picture

This "7 big figure" move by the Yen will do nothing to solve Japan's problems which are systemic.  And Japan also bought a lot of off-shore assets in the late 80's.  How'd that work out?  Japan's decline is not because of a stronger Yen or lack of foreign assets, but because of a corrupt government which policies are nearly all dependent on a constantly growing economy.