The Immovable Object In The Path Of Abe's Unstoppable Reflationary Force

Tyler Durden's picture

Day after day, just after the US day-session close - just as traders settle down for some Ovaltine and light reading - someone (anyone) from Japan's political or financial elite sends a shot across the wires on the epic amount of easing that they will do to fight deflation. Explicitly focusing on the stock market, with the economy 'hopefully' coming along for the ride, is the cunning plan to inflate asset values into a self-fulfilling cycle of awesomeness for the structurally deadbeat Japanese economy. So far so good - given JPY's weakness and NKY's nominal rise. But loathed as we are to steal the jam from Abe's donut, there is a rather large fly in his inflation ointment - Brent VigilantesTM. Today saw the price of oil in Japan rise to its highest since September 2008. Anytime the price of oil has topped JPY10,000 per barrel, Japan's macro-economy has slumped. Just as we noted earlier, there is simply no free lunch in the competitive devaluation game - as the market's only self-regulating force remains in the price of energy.

The price of crude oil in JPY has surged (as one would naturally expect) as JPY has been devalued...


this implicit inflation has historically had a significant impact on Japan's economy...


So just as they see the nominal price of their stock market zoom Zimbabwe-like to the moon on the back of an ever-devaluing currency, so the people and corporations of Japan (well those that need energy in any way whatsoever) have their pockets picked and margins crushed...


Charts: Bloomberg

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Lady Heather...UNCLE's picture

...another weird and wonderful day in the new normal. Move along folks, nuthin' to see here

markmotive's picture

Surprised? At the end of all this bullshit we call a financial system is hard limits to growth.

We think we can control the universe but all this time the universe has been controlling us. We've been deceived into believing our own hype. Unfortunately, the systems of the past 300 years are all based on EROEI. As it turns out, you can't print your way to prosperity without the geological winds at your back.

Welcome to the twighlight of petroleum

Say What Again's picture

The word, "hope," should never be part of a business plan - and definitely not part of a central banker's plan.

ATM's picture

But it is a proven political winner. We all hope for a better future full of seashells and balloons but only 20% of the people are willing to actually do something to achieve it. The rest vote for those who promise to give them hope in the form of free shit.

Dr. Engali's picture

The "wealth effect"...making billions of people a little bit poorer every day. Well done Bernank.

nicoacademia's picture

unless it tears. then even more good money.

besnook's picture

you forgot another plank in abe's manifesto. he will crank up the nukes any day now.

Caviar Emptor's picture

I am so excited by high numbers! It gives me a sense of confidence in the system, and it makes me want to celebrate by shopping till I drop. On credit!! And it even makes me want to lie on my loan application. A guilty pleasure :) 

Bring it on!! The world will soon be used to the word quadrillion. Hello quintillionaires! 

besnook's picture

another question is whether japan is paying in dollars, yen or yuan.

yrad's picture

And here come the meatballs!

Yen Cross's picture

 The BoJ cronies are going to sit around and "beat their gums", to inflate the yen as much as possible before they BoJ rate decision and policy meeting Thursday. They don't have China to contend with this week either. That stupid meat head Abe is milking it for all it's worth. The rest of Asia is buying ($) like drunken sailors. DXY is running back up to the 200day ma 80.92.

  All of Asia is devaluing, so Japan can play the [two wrongs make a right] game. Bernanke I hope you choke to death on a roll of ($ fiat) toilet paper.

fonzannoon's picture

85 bil/mo to eternity and asia can't get enough of it. fuck it lets all buy some stawks the rumors of our demise have been greatly exaggerated. 

ekm's picture

85b/months goes to primary dealers  and other major banks to pay for lost bets with swaps.

From those banks the money goes to the winning counterparties.


The winning counterparties use part of that money to buy and store oil....hence brent at $120.

fonzannoon's picture

bernak will tell them to stop fkin around because they will end up cutting off their own heads. just buy some more stawks and leave oil alone.

ekm's picture

Benny has no power. Barack has the power LEGALLY along with Boehner. Both can order the Fed what to do, legally.

fonzannoon's picture

and yet neither do. 

ekm's picture

China game is pretty simple to me.

Lure china into some kind idiotic incident with weapons in order to scare away investors from China.

ekm's picture

I've said it for months and months and I will say it again:

Crude oil is in hyperinflation and the real economy grinds down at brent $80 and literally stops at brent $120.


Only and only crude oil price, is the real cap to QEs, nothing else.

fonzannoon's picture

no way they cap qe because of oil. bernak will never acknowledge inflation. Obummer will blame oil speculators and hike margins or something to try to knock the price down.

ekm's picture

I think it's the opposite.

Crude oil only will force Obama's hand to stop QE or dump oil into the consumption market, as Bush did in 2008.


There's no economy without oil. There's no other option.

fonzannoon's picture

they may dump oil into the consumption market, but they can't end qe. they certainly can't end it because of any inflationary concern. the minute they acknowledge inflation they risk yields popping higher.

ekm's picture

The more QE continues, the more the financial sector disappears.

There's nothing left to trade. The Fed + Primary Dealers have bought up everything.

Hedge Funds are closing down day after day, even primary dealers are closing offices all over the world and firing people in USA.


It can't continue, it just cant.

ekm's picture

It's going to be a 1987 style drop.

Collapse without news. Simply because there's nothing else to do, simple gravity.


3 days later, dow would be 8000. Just by gravity on zero news, on zero events. They will blame it on HFT.

fonzannoon's picture

when that happens i will drive up there and shake your hand for having laid it out on a plate in advance.

LawsofPhysics's picture

Interesting hypotheses guy.  I believe it all becomes mute, especially margins, as all countries start holding on to their oil and other resources simply because they need to keep their own people from rioting.  What is the "price" of something I won't sell?  We saw this with the soviet union's collapse.  There will be no official news, but lots of official prices, both of which will be completely ignored in the real markets.

forwardho's picture

they need to keep their people from rioting.

QE, EBT, Medicare/aid, Section 8... ad infinitum. The point has been reached where tremendous amounts of capital is being spent to this end. It would seem that the prime function of the G is to counter possible (Inevitable?) social unrest. Consider the alternative.

Dareconomics's picture

The rising oil prices will work their way through to the CPI. Once inflation is stoked in Japan, the game is over:

yatikto's picture

Doesn't money from the FED come with strings attached?

If you believe that PM's are manipuladed by this liquidity, you have to belive that brent is too.

This is just a slap across the ocean. But don't slap too hard or Japan might run to China and that alliace would be harder to manage.


Divide and conquer.

steve from virginia's picture





Depreciation from ¥80 to the dollar to ¥100 means a ‘Great Leap Upward’ in Japanese fuel prices because the country has no native sources of petroleum or other fuels. Japan beggars itself instead of its neighbors: whatever the country hopes to earn by exports is offset by the increased cost of the fuel it must import. At the same time, dollar-fuel prices are increasing because of ‘growth’ propaganda, moral hazard for petroleum ‘investors’ as well as threats of war in petroleum producing regions. With depreciation and higher producer costs the Japanese driver can look forward to paying a deflationary 30% or greater premium for fuel compared to the rest of the world. Certainly, here is conservation by other means!


The foregoing omits systemic risk to Japanese banking and finance which cannot be easily measured. The smallest error can have shattering consequences. For example, the Bank of Japan central bank can be perceived by the marketplace to be making unsecured loans … that is, loans in excess of collateral that it takes on as security. If this is so, the central bank is instantly insolvent … as are other Japanese banks and for the same reason: bad loans and excess leverage! Keep in mind, the only reason why a central bank would think of offering unsecured loans is if the country’s commercial banks are insolvent and unable to lend. The outcome is no effective lender of last resort to guarantee bank liabilities: a run occurs as depositors hustle to remove funds from a defunct system. In this light the recent months’ acquisitions of overseas companies by Japanese businesses is ominous.


Endgame is underway, folks.



steve from virginia's picture




BTW: currencies or 'money' have no value, they are the means to destroy it. They are manufactured items (abstractions) that are claims against capital, not capital itself.


Because money has no value it cannot be 'devalued' only depreciated or 'de-worthed'.


Any economists who claims money has value is a believer in fairy tales and unicorns.



q99x2's picture

Oops there goes another water bug.

dunce's picture

It is true that there is no free lunch, but all money printers seem to believe that even if they can not win, they can lose less than the rest. It will be a Pyrrhic victory.

Catflappo's picture

No need to worry - Abe and his BoJ buddies will be able to perfectly juggle it so inflation reaches 2% (not a penny more).   

Ooops, apart from when it suddenly goes to 5%...