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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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Mon, 05/13/2013 - 21:09 | 3558797 Jim in MN
Jim in MN's picture

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

Mon, 05/13/2013 - 21:28 | 3558860 jon dough
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...

Mon, 05/13/2013 - 22:50 | 3559095 markmotive
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.


Tue, 05/14/2013 - 00:26 | 3559252 Bohm Squad
Bohm Squad's picture

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

Mon, 05/13/2013 - 21:10 | 3558800 FreeMktFisherMN
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. 

Mon, 05/13/2013 - 21:46 | 3558920 Melin
Melin's picture

Definitions don't matter.

Words mean what everyone chants them to mean. 


Tue, 05/14/2013 - 00:53 | 3559285 strannick
strannick's picture

We know they have Big Mac inflation...

Mon, 05/13/2013 - 21:16 | 3558822 Gringo Viejo
Gringo Viejo's picture

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

Mon, 05/13/2013 - 21:21 | 3558835 devo
devo's picture

Must. Feed. The. Monster.

Mon, 05/13/2013 - 21:22 | 3558840 Izznogood
Izznogood's picture

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

Mon, 05/13/2013 - 21:47 | 3558937 andrewp111
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.

Mon, 05/13/2013 - 22:18 | 3559031 NihilistZero
NihilistZero's picture

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

Rising wages from productivity gains are not inflationary at all.

Mon, 05/13/2013 - 23:37 | 3559180 mayhem_korner
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"? 

Mon, 05/13/2013 - 21:27 | 3558858 Tinky
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.

Mon, 05/13/2013 - 21:39 | 3558893 Bay of Pigs
Bay of Pigs's picture

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

Mon, 05/13/2013 - 22:06 | 3558996 theliberalliberal
theliberalliberal's picture

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

Mon, 05/13/2013 - 22:36 | 3559070 Yen Cross
Yen Cross's picture

      Nothing a few trillion ¥ coins can't fix.

Mon, 05/13/2013 - 23:00 | 3559109 W T F II
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...

Tue, 05/14/2013 - 00:26 | 3559251 M2Market
M2Market's picture

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

Tue, 05/14/2013 - 05:47 | 3559512 e-recep
e-recep's picture

paging kyle bass.

Tue, 05/14/2013 - 02:47 | 3559385 GreatUncle
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.

Tue, 05/14/2013 - 10:40 | 3560408 andyupnorth
andyupnorth's picture

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

Tue, 05/14/2013 - 08:20 | 3559717 orangegeek
orangegeek's picture


Tue, 05/14/2013 - 10:39 | 3560404 andyupnorth
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

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