Japan Government To Change Inflation Calculation Ushering In Even More BOJ Liquidity

Tyler Durden's picture


When it comes to changing the "measurement" rules in the middle of the game, nobody does it quite like Japan: in the aftermath of the Fukushima nuclear explosion, when radiation was soaring (and still is with Tritium levels just hitting a record high but who cares - Goldman partners have to earn record bonuses on the back of the irradiated island) Japan's solution was simple: double the maximum safe irradiation dosage. Done and done. Now, it is time to do the same to that other just as pesky, if somewhat less lethal indicator: inflation. Reuters reports that the Japanese government plans to adopt a different measure of inflation to the central bank's.

The official explanation for this upcoming adoption of core-core-CPI which also excludes energy prices in addition to fresh food costs (as core CPI does everywhere else in the world) is to "raise the bar" on Abe's inflation goal. In reality, it will simply grant the BOJ unlimited ammo to continue injecting liquidity indefinitely because absent exploding energy costs (as we have discussed), inflation in Japan is quite dormant. But what will really happen is that inflation will merely become just one more governmentally-determined and goalseeked economic indicator and policy tool, as it is in the US and China.

Reuters explains:

Whereas the central bank targets a 2-percent year-on-year rise in the core consumer price index, a measure that excludes volatile prices of fresh food, the government plans to use "core-core" CPI, which also excludes energy costs.


The change will effectively raise the bar for Abe's inflation goal, as it means that higher energy prices will be taken out of the equation.


The official, who was involved in the decision to switch to "core-core", said the change was meant to help ensure that the world's No. 3 economy truly breaks the grip of deflation.


"Unless we have price rises that aren't temporary, that won't reverse, we can't say we've escaped from deflation," the official said on condition of anonymity.


The change could result in more pressure being put on the central bank to keep flooding the market with yen as the inflation target becomes harder to achieve.  It could also complicate the government's plans to raise the nation's sales tax.


The BOJ has vowed to continue its massive easing -- which includes doubling the money supply through enormous purchases of government bonds and other assets --to generate modest inflation over the next two years.


Core CPI stopped falling in May, the latest reading, and many economists expect it to gradually rise above zero. But the apparent fade in deflation partly reflects higher prices for imported oil and natural gas as a result of the weaker yen and the shutdown of nuclear power plants after the 2011 earthquake and tsunami.


In contrast, core-core CPI, although it has slowed its declines, remained down 0.4 percent on year in May. Some economists expect this measure to turn positive by year's end, but the government official said that might be optimistic.


Indeed, government data may understate the persistence of deflation.

In the meantime, "in hedonic  djustments we trust."

Prices of 32-inch televisions, which are included in the CPI basket, have stopped falling, but price competition has merely shifted to larger-screen TVs, said an official at electronics mass-retailer Bic Camera Inc .


Similarly, McDonald's Holdings Co. (Japan) recently grabbed attention by raising prices on hamburgers and cheeseburgers, but a spokesman said the fast-food giant has cut prices of chicken nuggets and small fries.

Finally, since the proposed change means even more monetization of debt, Japan has realized that since it doesn't need to actually raise tax revenues as the central bank will fund the country's ridiculous budget deficit indefinitely or until such time as the party ends, it can scrap the proposed doubling of consumption tax to 10% in the coming years.

Bottom line, win win for everyone: Abe is happy because the people like him due to his tax-cutting measures, the centrally-planned stock market continues soaring in current nominal terms due to the endless dilution of the currency and the monetization of securities by the BOJ, and Goldman's bonuses hit another record. And all it took was the perversion of yet another meaningless and now manipulated economic data indicator.

In the meantime, that this kind of pulling up by the bootstraps economic utopia does not work, and one can't print one's way to prosperity is lost on everyone. But why care: in the end, everyone knows that Japan is finished - after all . May as well enjoy the here and now.

As Kyle Bass simply says: "Shikata ga nai."

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Tue, 07/09/2013 - 09:24 | 3733711 SheepDog-One
SheepDog-One's picture

Moar weekweedeetee!

Tue, 07/09/2013 - 09:32 | 3733717 Spider
Spider's picture

LOL - This is what happens when you need a lot of inflation quickly to inflate away massive debts.  Is it any wonder the Japanese are turning to gold again according to bloomberg...----------------------------

On another note, if you are fed up with whats happening in the PM markets then its time PM investors take back the PM markets. 

Join the Silver Pledge - an effort to beat the banks at their own game by having investors join up and buy physical silver - together we can break this market.  You can read more here but it is completely free:


Tue, 07/09/2013 - 11:18 | 3734021 malikai
malikai's picture

I have designed a new highly sophisticated quantitative inflation determination function. I submit it here to the public domain:

i = (1+(1/1)-1) + a;

Where a is the desired inflation amount and i is the product.

Tue, 07/09/2013 - 09:24 | 3733713 PaperBear
PaperBear's picture

Did the Japanese government just tell the privately owned Bank of Japan that your measurement is full of s**t ?

Tue, 07/09/2013 - 09:48 | 3733764 suteibu
suteibu's picture

Actually, the government owns 55% of the BOJ.  Any discussion of bank independence (as if that has any meaning at all) should recognize this.

Tue, 07/09/2013 - 10:10 | 3733824 CPL
CPL's picture

What's it going to do about it?


Nothing.  They made their bed now they can rot in it.

Tue, 07/09/2013 - 09:25 | 3733716 Praetor
Praetor's picture

No problem - Japanese to link inflation to the inverse of the half life of the tritium nucleus.

Tue, 07/09/2013 - 09:39 | 3733749 Headbanger
Headbanger's picture

Let's see that't 1/14 as I recall. Which works out to be 0.07%    Nahhh..  still too high

But the bright side (pun intended) is they don't need moar power plants cause everything glows

in the dark now!

Tue, 07/09/2013 - 09:26 | 3733720 sudzee
sudzee's picture

See, printing trillions doesn't create inflation.

Tue, 07/09/2013 - 09:30 | 3733730 yogibear
yogibear's picture

Magic for now. Japan about to experience a financial nuke when all the Central Bank games end.

Tue, 07/09/2013 - 10:00 | 3733794 rwe2late
rwe2late's picture

 Arguably, printing trillion$ doesn't directly create inflation


(as in the USA)

new fiat doesn't actually enter the economy

but instead is merely an accounting entry gimmick used

(1) to disguise the transfer of ownership of  worth-less securities from TBTFs to government and government backed Fed (central bank)

and (2) profit insiders with fees and interest from the fiat shuffle.


The "shuffle" will distort demand, credit, government spending, wealth concentration, and hence the overall political economy.

Tue, 07/09/2013 - 09:27 | 3733722 Cognitive Dissonance
Cognitive Dissonance's picture

If everyone lies has the lie been transformed into the truth? I thought "truth" was determined by the majority, like "normal".

Tue, 07/09/2013 - 09:27 | 3733723 yogibear
yogibear's picture

Bubble Bernanke, Evans, Dudley, Fisher and Yellen all running their grand printathon experiment with Japan. More QE is in the cards, not less.

Tue, 07/09/2013 - 09:28 | 3733726 Seasmoke
Seasmoke's picture

With all the definition changes. And rules changes in middle of game. I am glad for them. They made me free from the entire matrix. Other than my own moral compass. I no longer follow rules , laws or any authority figures made up by others.

Tue, 07/09/2013 - 09:30 | 3733731 Temporalist
Temporalist's picture

I just had the doctor change my charts to say I'm immortal.



Tue, 07/09/2013 - 09:36 | 3733744 NoDebt
NoDebt's picture

Awesome.  That must do wonders keeping your insurance costs down.  Oh, wait...... Obamacare.  300% increase in premiums for Immortals.  Since you live forever, you can carry more of the burden for those who do not.  It's only fair.  And, of course, it's for the children.  You're cool with it, right?  Of course you are.

Tue, 07/09/2013 - 10:09 | 3733819 Temporalist
Temporalist's picture

I have decided to go skydiving without a parachute.  Deficits don't matter for neo-keynesians and neither does gravity when you're immortal.  Geronimo!!!

Tue, 07/09/2013 - 09:31 | 3733734 butchee
butchee's picture

New infration carcurations inclease riquidity!

Tue, 07/09/2013 - 09:33 | 3733740 NoDebt
NoDebt's picture

Ah, I see now.  The collapse will come, but nobody will ever be allowed to say it's happening. 

Tue, 07/09/2013 - 09:36 | 3733746 yogibear
yogibear's picture

More printing creates just more excesses that must be taken out later. It's why QE stops working after while. The system needs more and more QE and debt buying for more government spending.

Exponential debt and printing will be extremely painful at some point.

Tue, 07/09/2013 - 09:37 | 3733748 holdbuysell
holdbuysell's picture

The intellectual dishonesty in the world is the other exponentially growing phenomenon.

In other news, John Williams of Shadowstats just found a growth opportunity for his wares.

Tue, 07/09/2013 - 09:44 | 3733760 NEOSERF
NEOSERF's picture

See this period of the next 5 years or so for what it is...it is the last grab by the 1% before the implosion they know is coming, hits.  It is why the Larry Ellisons of the world are buying walled off fortresses and islands.  With inflation set to double the world's costs and impoverish the middle class, only the rich will survive this Dickensonian return the to the 1930s...

Tue, 07/09/2013 - 18:20 | 3735485 BigInJapan
BigInJapan's picture

Who is this Dickenson of whom you speak?

Tue, 07/09/2013 - 09:44 | 3733761 Al Huxley
Al Huxley's picture

I guess it must fool some people.  Since they're lying constantly in any case, I sometimes wonder why they bother to change the contents of the index, and don't just fabricate an acceptable number based on the existing index.  Maybe this is just part of the training process and they'll get there eventually.

Tue, 07/09/2013 - 10:51 | 3733924 rosiescenario
rosiescenario's picture

They fear whistle blowers if they fabricate....if you publicly introduce a new yardstick that is 30" long then no one can rat you out.


So food and energy are now excluded....that leaves plenty of room for new ones....clothing, shelter, and electonric devices (in that order) should be next.

Tue, 07/09/2013 - 09:51 | 3733773 suteibu
suteibu's picture

This is not new for Japan.  When the poverty rate (poverty in Japan?  Yes, and homelessness, too) got too high for politicians, they simply changed the criteria, lowering the rate.  Problem solved.

Tue, 07/09/2013 - 09:53 | 3733777 Hedgetard55
Hedgetard55's picture

Intelesting. Gas will be $100 dollars a gallon but there will be no inflation.

Tue, 07/09/2013 - 09:57 | 3733787 apberusdisvet
apberusdisvet's picture

Surprising that the enviros haven't raised a stink about the unfixable radiation that will shorten the life span of millions (billions?) over the next few decades, especially those on the North American west coast.

Or are the enviros really "controlled" opposition?

Tue, 07/09/2013 - 11:52 | 3733907 rwe2late
rwe2late's picture


Your insinuation is both unfounded and off-topic.

Do a web search (Yahoo) of radiation West Coast,

and you will find that the "enviros" have been raising concerns about radiation spread within Japan and to other countries,

contrary to the government spokespersons and agencies (such as EPA and Nuclear Regulatory) which have been downplaying any risk.

Tue, 07/09/2013 - 10:06 | 3733809 Colonel Klink
Colonel Klink's picture

When you're getting beaten at your own game, change the rules.  Carvinbarr!

Tue, 07/09/2013 - 10:12 | 3733829 Stuck on Zero
Stuck on Zero's picture

The governments of the world need to get together to make the meter shorter and the kilogram lighter so that we all seem to get more for our money.


Tue, 07/09/2013 - 10:17 | 3733845 smacker
smacker's picture


Changing CPI to measure core-core is so obviously a giant con-trick intended to deceive people as to what inflation really is. Why doesn't Abe throw away ALL the inflation measurement systems and simply use a Random Number Generator (I wrote one a few years back to select lottery numbers) to select any negative figure that suits him. He could sack all the government statisticians and save some money too.

If he was really really smart, he could line up a monthly Saturday night TV slot where a member of the audience pressed the RNG button to choose the number!


Tue, 07/09/2013 - 10:52 | 3733926 The Count
The Count's picture

Why look all the way to Japan? Clinton comes to mind immediatly who manipulated the CPI to reflect things that have nothing to do with prices (forgot the name, another senior moment).

Example, TV sets went up 10 percent in price? Well, but its now has gizmo X built in, so that negates the increase. Total und utter BS but it went through and every other president tweaks the formula again. And again.

Tue, 07/09/2013 - 11:17 | 3734026 alangreedspank
alangreedspank's picture

A rot of infration is coming to finarry defeat defration!

Tue, 07/09/2013 - 13:22 | 3734466 MeelionDollerBogus
MeelionDollerBogus's picture

greedspankosan, I feer this wirr be very bifrationary!

Tue, 07/09/2013 - 11:31 | 3734070 Fuku Ben
Fuku Ben's picture

Pretty sure I had sashimi yesterday that came from that three eyed fish

Tue, 07/09/2013 - 12:35 | 3734279 Joebloinvestor
Joebloinvestor's picture

Obfuscation started when logrithmic scales were invented.

Tue, 07/09/2013 - 12:41 | 3734300 NoTTD
NoTTD's picture

Personally, I welcome our Nip fellow travelers to the world of magical inflation calculations.  

Tue, 07/09/2013 - 13:21 | 3734456 MeelionDollerBogus
MeelionDollerBogus's picture

All that's missing is the fraud grand trifecta:
no inflation
no excessive radiation
and no global warming

After all, we don't need thermometers, geiger counters or to ever care about food & energy prices, much less land prices (including perpetual taxation aka slavery).

Tue, 07/09/2013 - 14:49 | 3734831 dudeman
dudeman's picture

Inflation does not show up as a linear increase in prices. It shows up in the FX markets first, then the asset markets, and finally consumer prices. Inflation first shows up as increasing volatility in the value of the currency. As the currency fluctuates wildly, productive business turns into a gamble and the process of wealth creation disappears and basically becomes a casino.

Tue, 07/09/2013 - 14:59 | 3734869 dudeman
dudeman's picture

Inflation does not show up as a linear increase in prices. It shows up in the FX markets first, then the asset markets, and finally consumer prices. Inflation first shows up as increasing volatility in the value of the currency. As the currency fluctuates wildly, productive business turns into a gamble and the process of wealth creation disappears and basically becomes a casino.

Tue, 07/09/2013 - 15:00 | 3734870 dudeman
dudeman's picture

Inflation does not show up as a linear increase in prices. It shows up in the FX markets first, then the asset markets, and finally consumer prices. Inflation first shows up as increasing volatility in the value of the currency. As the currency fluctuates wildly, productive business turns into a gamble and the process of wealth creation disappears and basically becomes a casino.

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