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Japan's Ruling LDP Party Joins JGBi Market In Fears that "Abenomics Could Fail"

Tyler Durden's picture




 

With JPY back around 98 and the Nikkei 225 indicating further advances, perhaps the fears in the market are mis-represented - at least that's what the other Goldman desk would have you believe.

But, as The Japan Times reports, even glorious leader Abe's own LDP party are beginning to voice concerns that all this fluff is - well - just that. As we outlined here, the market is already concerned, domestic funds were very unwilling to partake of the exuberance - since they know the limitations of QE in their 20-year balance sheet recession environment - and as Goldman notes, the fact that the JGBi expected inflation level - a now symbolic indicator of policy success since Kuroda quoted it -  is now suddenly moving counter to its previous extended trend could possibly indicate the markets’ early signal questioning the credibility of the BOJ policy.

The recent stock price collapse, Lower House LDP lawmakers noted "shows the market expects little (of Abenomics)." The sky-high approval ratings (and business confidence) for the Abe Cabinet have been bolstered by the resurgence of the benchmark Nikkei since 'Abe(g)nomics began. The stock market’s downturn, therefore, has created a sense of crisis among some members of the ruling LDP, and while they are likely to give the nod to Abe’s 3rd arrow growth strategy, many are pushing for significant fiscal expansion because "Abenomics could fail."

Re: The Market doubts...

Via Goldman Sachs:

We should note that there has also been a notable reversal in the expected inflation rate. The breakeven inflation rate, embedded in inflation-linked JGBs (JGBi), had been following a sustained upward trend from the middle of 2012. The JGBi market is very small and illiquid, and thus we have not regarded BEI as a reliable proxy variable for expected inflation.

 

After the change in BOJ leadership, however, Governor Haruhiko Kuroda has referred to the JGBi expected inflation rate on several occasions, stressing that inflation expectations have turned positive as a result of the regime change.

 

The JGBi expected inflation is therefore a symbolic leading indicator of the policy success of the new regime, and we believe the fact that it is now suddenly moving counter to its previous extended trend could possibly indicate the markets’ early signal questioning the credibility of the BOJ policy, which is beyond the issue of communication inconsistency.

 

 

...

 

Mortgage rates are already rising, and a higher rate environment could damage the precious positive trend that has developed in the economy. JGB market volatility may also dampen the risk appetite of investors, which could in turn have a negative impact on the equity and forex markets. The BOJ needs to make every effort to stabilize long-term rates to avoid such consequences.

 

In light of these issues, we think the main theme of the upcoming policy meeting will be improving communications surrounding the intentions and impact of the new policy scheme. We also see them discussing an extension of fund-supplying operations against pooled collateral to two years (from the current 1-year limit) in order to contain immediate market instability.

 

Re: The Politicians doubt...

Via The Japan Times:

Liberal Democratic Party lawmakers have begun to openly express discontent over Prime Minister Shinzo Abe’s economic growth strategy ahead of July’s Upper House election.

 

Many LDP members have turned on “Abenomics” since the Nikkei 225 stock average nosedived Wednesday on the market’s underwhelmed reaction after Abe unveiled the “third arrow” of his strategy earlier that day.

 

The sky-high approval ratings for the Abe Cabinet have been bolstered by the resurgence of the benchmark Nikkei since the government and the Bank of Japan hammered out a set of drastic fiscal and monetary stimulus steps earlier this year. The stock market’s downturn, therefore, has created a sense of crisis among some members of the ruling LDP.

 

As stock prices plummeted following the announcement of Abe’s structural reforms for the economy and a draft of his government’s fiscal consolidation plan, Hitoshi Kiuchi, a Lower House LDP lawmaker, told a joint meeting with the government Friday that “this shows the market expects little (of Abenomics).”

 

At the gathering, Kozo Yamamoto, another LDP member of the House of Representatives, demanded the government implement fiscal measures that can fully offset the negative impact of the consumption tax hike scheduled for next April. Raising the levy to 8 percent from the current 5 percent “is the biggest risk for Abenomics,” he stressed.

 

Many other LDP participants voiced their opposition to the growth measures unveiled by Abe last week, especially a plan to eliminate the current ban on online sales of nonprescription drugs. Scrapping this regulation runs counter to the policy platform presented to voters during the LDP’s victorious campaign for December’s Lower House election, one party member argued.

 

If the Abe administration keeps sidelining the LDP regarding policy management, in disregard of deteriorating macroeconomic indicators, it will have an adverse impact on the party’s fortunes in the upcoming House of Councilors poll, the party sources said.

 

“Abenomics could fail” and to prevent this, the government should adopt the ruling party’s proposals, a veteran LDP lawmaker stressed.

 

Yet the LDP is still expected to give the nod to Abe’s growth strategy and other policy measures as early as Monday to avoid internal strife before the looming election, analysts said.

 

Still, if stock prices and long-term interest rates continue to fluctuate with their recent volatility, this would shake the LDP even deeper, they added.

 

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Sun, 06/09/2013 - 22:04 | 3640912 fonzannoon
fonzannoon's picture

"and a higher rate environment could damage the precious positive trend that has developed in the economy"

What fucking country are we talking about? Every single one? I forget.

Sun, 06/09/2013 - 22:08 | 3640926 jon dough
jon dough's picture

The one that's in the shitter? Oh, right, that's all of them, too...

Mon, 06/10/2013 - 00:04 | 3641196 knukles
knukles's picture

Isn't it a little late for this concern?

Sun, 06/09/2013 - 22:31 | 3640997 stocktivity
stocktivity's picture

Japan market way up tonight...rally on...It's all Bullshit!!

Sun, 06/09/2013 - 22:11 | 3640932 Dr. Engali
Dr. Engali's picture

Well if they turned their backs when the market nose dived I wonder if they turned back around now that the Nikkei is ripping higher. We love it..we hate it...we love it again. Politicians are all the same pieces of crap world wide.

Sun, 06/09/2013 - 22:14 | 3640948 ziggy59
ziggy59's picture

Doc, theyre called patholgical liars and schitzophrenics for a reason..
..just sayn

Sun, 06/09/2013 - 22:33 | 3641009 jon dough
jon dough's picture

You put your right nut in,
You put your left nut out,
You put your right nut in,
And you shake 'em all about,

You do the hokey pokey
and you turn yourself around
That what it's all about.

Mon, 06/10/2013 - 00:12 | 3641210 knukles
knukles's picture

First somebody gives me a veritable overload of slithering incomprehensible slimy visuals of Maria Blowtoromo gobbling a member while all wigged out on blow and crack tonight and now I get this ever so clear image of somebody very happily singing and dancing around her while wiggling his nut-sack and dong in her face....

Jesus, you people are in need of serious professional help.
Thank God!

 

And of all the monickers, the guy's name is Jon Dough, FFS
I think I'm starting to cry.....

Mon, 06/10/2013 - 21:56 | 3644601 jon dough
jon dough's picture

I'm ready for my close up, Mr. Demille...

Sun, 06/09/2013 - 22:49 | 3641051 Fuku Ben
Fuku Ben's picture

In this case betting against the house is a smart move

Sun, 06/09/2013 - 23:08 | 3641087 Everybodys All ...
Everybodys All American's picture

Could fail? lol.

Hey Japan ask Soros about your currency. Fail. It's a near certainty.

Sun, 06/09/2013 - 23:27 | 3641130 catch edge ghost
catch edge ghost's picture

No way it can fail. Zero percent chance. timestamp. bitchez. etc.

Sun, 06/09/2013 - 23:38 | 3641152 SheepDog-One
SheepDog-One's picture

Economy based upon massive currency printing could possibly fail?

NO WAY say it ain't so!

Sun, 06/09/2013 - 23:45 | 3641169 BigInJapan
BigInJapan's picture

Itzu aaru obah now.

Mon, 06/10/2013 - 03:27 | 3641396 dunce
dunce's picture

All this 2, 2, 2, business reminds me of the fellow that was going to make a fortune doubling his bets until he won really big in Las Vegas. Mathematically the idea works if you have an infiniter amount of money to bet at the start. If you have that much at the start, why are you gambling?

Mon, 06/10/2013 - 04:07 | 3641406 NipponMarketBlog
Mon, 06/10/2013 - 07:24 | 3641517 machineh
machineh's picture

The JGBi market is very small and illiquid, and thus we have not regarded BEI as a reliable proxy variable for expected inflation.

In Japan, individuals aren't allowed to own JBGi bonds. Only institutional investors can buy inflation protection.

Thus, Mrs. Watanabe has no choice but to buy the Nikkei.

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