Memo To Japan: It Is Going To Be A Cold, Expensive Winter
Two weeks ago we showed that while the short-term gains generated by the Japanese stock market are welcome, the impact of Abe's synthetic "wealth effect" is far less than generally accepted for one reason: unlike the US, the financial assets held by the Japanese public in the form of equities are a tiny fraction of the whole pie.
However, while the Nikkei surging was a boost to a small percentage of the Japanese population, the negative offset, the lost purchasing power due to a plunging Yen which is the sole reason for the nominal rise in the stock market, has impacted all equally. And as the January trade deficit data showed, when Japan's trade deficit plunged to a record level despite the arrival of Abe (or perhaps due to: after all, the nationalist regime's territorial squabble with China has been a primary reason why Chinese imports from Japan has imploded), the primary reason for crushing the Yen: unleashing exports (or boosting the current account surplus for that matter), has so far been a complete disaster.
One must also remember that Abenomics' reflation attempt is being enacted at a time when Japan, in the aftermath of Fukushima, has virtually no domestic energy creation left as the entire local nuclear power industry has been mothballed, resulting in a chart showing the Japanese power generated by nuclear looking like this:
Yet one place where Abenomics has worked "miracles", inversely to what was intended, is in the area of energy import prices. As the chart below from Diapason shows, and just as we warned would happen, the price of LNG imports into Japan have just hit all time highs.
Which means one thing: while Abenomics has failed in spurring exports, while the rise in the Nikkei has benefited some 1-2% of the population, the most direct consequence of crushing the yen some 20% is that energy costs, virtually all of them imported, are if not surging, then about to soar to all time highs.
In other words, our sincerest condolences to Japan, for whom this winter will be a very cold one (and a very hot summer follows), unless of course in Japan, like in the US, energy costs don't matter when calculating CPI and inflation and the consumer can spend any amount to keep themelves warm, or cold as the case may be.
Naturally, should inflation accurately reflect that record surge in LNG prices, then Abe's inflation target of 2% has long since been surpassed however without generating any of the required beneficial side effects. All this would mean that central planning has failed once more: who would a thunk it?
And as a final thought experiment corollary: perhaps the reason why Japan has been so belligerent when it comes to the Senkakus/Diaoyu islands is because the administration knows that relinquishing control of the Chunxiao gas field would force the country to revert back to its deflationary path in a world in which it is forced to rely on external, and very rapidly inflating in price, sources of energy.
Now for those who recall their history, is this not simply a replica of the conditions that led to Japan's premeditated, and US-devised, attack on Pearl Harbor (recall the McCollum memo from October 7, 1940)?
Which then begs the question: is Goldman Sachs, in its policy of populating every central bank with its tentacles, and pursuing - without fail - a reflationary policy which leads a wealth effect for the 0.1%, and the kind of general popular outcome that led to Pearl Harbor and the US entrance into World War 2, simply agitating behind the scenes for global war: whether it be between Japan and China, whether it is the Arab Spring of 2011 due to soaring food prices, whether it is the advent of Neo-Nazi powers in Europe due to preserving the EUR-centered status quo, and which inevitably will result in bloody civil conflict?
Because while millions may die, just think of the benefits to global GDP, and to those financially innovative companies that know just how to provide funding in times of global need, should yet another global war break out...