Goldman Pours Cold Water On The Inflation Expectations In Japan

Tyler Durden's picture

Inflation expectations (CPI this evening) have risen on expectations surrounding Prime Minister Abe’s policies and bold BOJ monetary easing under Kuroda. In developed economies, inflation expectations are often measured using the breakeven inflation rate (BEI) embodied in inflation-indexed government bonds.

And sure enough much has been made of the rise in so-called JGBi's (despite their small notional outstanding and limited liquidity) as indicative that expectations are increasingly creating a virtuous cycle for Japan (encouraging domestic consumers to spend not save). However, while this all sounds jolly good in the headlines, as Goldman Sachs notes, in fact the JGBi market (when adjusted for a planned consumption tax hike in 2014) implies a considerably lower expectation of inflation (around 1%) to 2015 (the end of Abe's predicted 2Y plan).


A BEI reflects average inflation expectations for JGBi residual
maturity. A consumption tax hike to 8% (from 5%) is planned for April
2014. Assuming 75% of the increase is passed on in CPI as in the past,
we calculate that the BEI excluding consumption tax impact will be only
around 1% at the end of fiscal 2015.

Oh well, must need moar money...

Source: Goldman Sachs

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Jim in MN's picture

Hey wait, isn't Goldman banned from all financial markets for their fraudulent and damaging activities worldwide?

jon dough's picture

No, you're thinking of Waddell and Reed. And thank goodness, too, who knows what mischief those guys get up to...

markmotive's picture

The irony is if the BofJ is successful in achieving a 2% inflation rate they will have subsequently destroyed their own economy.

Bohm Squad's picture

I'm pretty sure you're both thinking of Egan-Jones...

FreeMktFisherMN's picture

Japan already has massive inflation. Inflation is the increase in the supply of currency/credit. Inflation can happen even if prices are falling, because they would have fallen further had there been no ctrl-p'ing. 

Melin's picture

Definitions don't matter.

Words mean what everyone chants them to mean. 


strannick's picture

We know they have Big Mac inflation...

Gringo Viejo's picture

Down the rabbit hole.......through the looking glass....
Masters of misdirection and perfidy.

devo's picture

Must. Feed. The. Monster.

Izznogood's picture

It seems they have forgotten to include the inflation of the Nikkei ...

andrewp111's picture

Just a bubble. When it goes pop, we will all go together.

Real inflation requires rising wages. Anything else is just bubbles.

NihilistZero's picture

"Inflation is always and everywhere a monetary phenomenon" - Milton Friedman

Rising wages from productivity gains are not inflationary at all.

mayhem_korner's picture



Inflation does not require rising wages.  There has been massive inflation in food and consumer staples in declining wage environments.  Liquidity does not have to migrate to consumers for prices to go up.  What do you think is going on in the stock "markets"? 

Tinky's picture

Hmmm...perhaps Goldman is the one opposite Kyle Bass in the 400–1 trade that latter referenced recently. That might explain this – ahem – questionable public position.

Bay of Pigs's picture

Hey, what happened to those prices of Big Macs and Quarter Pounders? 

theliberalliberal's picture

they'll stop using wrapping paper soon and start using 10,000 Yen notes

Yen Cross's picture

      Nothing a few trillion ¥ coins can't fix.

W T F II's picture

I am sure GOLD, man..!! can conjure up some kind of "Japan CPI Guarantee" contract to assure the efficacy of Japan's glorious program...

M2Market's picture

Attention:  JGB Futures limit down AGAIN!  Shit is about to get seriously real in Japan

GreatUncle's picture

A fully mature industrial economy once it reaches a certain point goes into stagnation because the efficiency of productivity that is socialist swamps any ability of capitalism to generate a return. If any do achieve the return likely it is government funded and directly tied to the sovereign debt. Go look who is interested in the government handout schemes and spot the known names.

andyupnorth's picture

Exactly.  Either half the people go unemployed and starve, or everyone works 20 hours per week.

andyupnorth's picture

Ghoul-man Sucks!


1. an evil demon, originally of Oriental legend, supposed to feed on human beings, and especially to rob graves, prey on corpses, etc.
2. a grave robber.
3. a person who revels in what is revolting.
4. Goldman Sacks