The Failure Of Abenomics In One Chart... When Even The Japanese Press Admits "Easing Is Not Working"

Tyler Durden's picture

Since late 2012 Zero Hedge has been very critical of Japan's Abenomics experiment, and its first and only real arrow: a massive increase in the monetary base thanks to the BOJ's shock and awe QE announced in April, resulting in the collapse of the Yen (although in a not zero sum world this means ever louder complaints from US exporters such as Ford competing with Japanese companies), a soaring Nikkei (if only through May), and what was expected to be an economic renaissance as a result of a return to stable 2% inflation.

We repeatedly warned that the only inflation anyone would see in Japan is in imported energy costs and food prices, which in turn would crush real disposable income especially once nominal wage deflation accelerated, which it has for the past 16 months straight. So far this has happened precisely as warned.

Another thing we warned about is that the result of the bank reserves tsunami - just like in the US - lending in Japan would grind to a halt, as everyone and their grandmother sought to invest the resulting excess deposits in risk markets as exemplified best by JPMorgan's CIO division.

Today, with the traditional one year delay (we assume they had to give it the benefit of the doubt), the mainstream media once again catches up to what Zero Hedge readers knew over a year ago, and blasts the outright failure that is Abenomics, but not only in the US (with the domestic honor falling to the WSJ), but also domestically, in a truly damning op-ed in the Japan Times.

We will let readers peruse the WSJ's "Japan's Banks Find It Hard to Lend Easy Money: Dearth of Borrowers Illustrates Difficulty in Japan's Program to Increase Money Supply" on their own. It summarizes one aspect of what we have been warning about - namely the blocked monetary pipeline, something the US has been fighting with for the past five years, and will continue fighting as long as QE continues simply because the "solution" to the problem, i.e., even more QE, just makes the problem worse.

We will however, show the one chart summary which captures all the major failures of the BOJ quite succinctly.

More importantly, we will repost the Japan Times Op-Ed from last night, titled "BOJ’s money mountain growing but debt may explode" because it not only copies all we have said over the past year, but is a dramatic reversal from the Japanese population eagerly drinking Abe's Koolaid long after its expiration date. Because once the media starts asking questions, the broader population can't be far behind.

From Japan Times, November 17, 2013 highlights ours

BOJ’s money mountain growing but debt may explode

by Reiji Yoshida

Haruhiko Kuroda hit the ground running when he was appointed by Prime Minister Shinzo Abe in March to take charge of the Bank of Japan.

Out of the blue, the central bank’s new governor unveiled a super-aggressive easing policy the next month to double the nation’s monetary base in just two years. He said the BOJ would buy more than ¥7 trillion in long-term Japanese government bonds per month to flood the financial system with money to end more than a decade of deflation.

The BOJ’s nine-member Policy Board unanimously supported Kuroda’s goal of stoking 2 percent inflation in two years — a surprise about-face from its stance under his predecessor, Masaaki Shirakawa, who was concerned about the potential side effects of embracing such radical quantitative easing.

More than six months have passed. How has the BOJ’s strategy changed Japan’s financial markets and the real economy?

Critics say Kuroda’s monetary easing scheme isn’t working, although most of the public apparently believes otherwise.

There are growing signs of inflation, but not the sort heralding the start of Abe’s much-advertised recovery and rising wages. Instead, imported fuel and other products have become more expensive because of the weak yen ushered in by Kuroda and Abe, and this bodes ill for the public’s living standards.

Meanwhile, Kuroda’s aggressive plan is allowing the debt-ridden government to issue fresh bonds continuously, further increasing the likelihood of a fiscal crisis, they said.

People have been deceived by ‘Abenomics,’ ” Yukio Noguchi, a prominent economist and adviser to Waseda University’s Institute of Financial Studies, told The Japan Times in a recent interview.

Monetary easing is not working, and it’s going nowhere,” Noguchi said.

Since April, the BOJ has been gobbling up JGBs from banks and the open market. Its purchases amount to roughly 70 percent of the value of all new JGBs issued.

But the banks are just stowing that money in their accounts at the BOJ because they can’t find any companies interested in borrowing it.

“There is no demand for funds on the part of businesses. That’s why the monetary easing is not working,” Noguchi said.

Japan’s monetary base — the sum of cash in circulation plus banks’ current account balances at the BOJ — surged from 23.1 percent in April to 45.8 percent in October, thanks to the BOJ’s aggressive operations.

But its money stock — the total amount of monetary assets available in an economy including credit created by bank loans, but excluding deposits held by financial institutions and the central government — only rose to 3.3 percent from 2.3 percent in the period.

This means banks are just depositing the massive funds provided by the BOJ in their own accounts at the central bank. The unloaned cash is thus having little affect on the real economy.

Meanwhile, the long-term interest rate, which theoretically factors in an expected rate of inflation, has fallen and is dwindling at an ultralow level of around 0.6 percent.

This signals that the market does not yet seriously believe that inflation in Japan will reach Kuroda’s 2 percent goal, said Kazuhito Ikeo, an economics professor at Keio University.

“When the policy interest rate has effectively fallen to zero, monetary policy won’t work much any more,” Ikeo said in a recent interview.

Ikeo believes the economy is stuck in a rut because its potential for economic growth has declined and monetary measures alone can’t solve the problem, he said.

“I think it has become clearer that there is a limit to what monetary policy can do,” Ikeo said.

Much of the public believes the drastic easing measures adopted by Abe and Kuroda helped weaken the yen and benefitted exporters. The yen-dollar rate has fallen from around 78 to about 100 over the past 14 months. This helped send the Nikkei stock index soaring from December, one of the main reasons Abenomics has public support.

But the yen started depreciating last fall, long before Kuroda’s widely proposed takeover at the BOJ officially took place in April, Noguchi said.

Abe was just “lucky” to see the yen fall, Noguchi claimed, crediting the easing of the eurozone debt crisis last fall rather than clear signs that Abe’s Liberal Democratic Party was getting ready to boot the unpopular Democratic Party of Japan from power.

In September, Japan’s consumer price index rose 0.7 percent from the same month last year to log its fourth consecutive rise, hinting at inflation. The uptick, however, was misleading. It was largely caused by the costly rise in energy imports, exacerbated by a weaker yen.

This, of course, is not a sign of economic recovery, both Noguchi and Ikeo said.

Workers’ real wages fell 2 percent in August compared with the same month the previous year, logging two drops in a row. Inflation without wage hikes will only erode people’s living standards.

“It is wages that matter. If prices go up without a rise in wages, the real income of the people just goes down,” Noguchi said.

Abe apparently is well aware of this risk and has repeatedly urged top business leaders in Keidanren, the nation’s largest business lobby, to push for wage hikes to generate “a virtuous cycle” of raises and economic expansion.

Noguchi calls Abe’s approach “sheer nonsense” because Japan is not a planned economy and the government thus cannot force businesses to raise wages against their will.

Probably the biggest risk with Abenomics, however, is a potential crash in JGB prices that would cause long-term interest rates to spike and gut the debt-laden government.

Ikeo pointed out that the BOJ’s massive bond purchases are in fact helping the debt-ridden government finance itself, even if the central bank claims this is not its intention. If the BOJ keeps up this charade, confidence in JGBs might crash, Ikeo said.

Soon or later, concerns over fiscal sustainability will emerge. You can’t rule out the possibility of a surge in the (long-term) interest rate at a critical point,” he said.

The resulting surge in debt-serving costs would devastate the government, which has already racked up a public debt totaling almost 200 percent of gross domestic product — the highest of all developed countries. Nearly half of Japan’s ¥92.6 trillion general account for fiscal 2013 is barely being financed by fresh JGB issues.

According to Noguchi’s simulation, if the average JGB yield jumps to 4 percent in fiscal 2014, debt-serving costs will leap to a staggering ¥50 trillion in fiscal 2025 alone, which is more than half the size of the fiscal 2013 budget.

“This is nothing but fiscal bankruptcy,” Noguchi warned.

For some two decades, fears and rumors have swirled about just such a scenario. Economists who warned of the impending crisis were labeled alarmists while speculators who bet on it always lost.

That situation may soon change.

Japan’s trade balance has turned into a deficit and the current account surplus has shrunk. Japan posted a surplus of ¥3.05 trillion in the current account for the April-September half, the second-lowest level since 1985, when comparable data became available.

Ikeo warned that if the current account balance sinks into red and people are convinced the yen will no longer strengthen, investors may start buying foreign bonds and ditch their JGBs.

Another possible danger is, ironically, a full-fledged economic rebound, which would also push up long-term interest rates, Ikeo said.

The government needs to walk “a dangerous narrow path” of seeking a recovery while trying to prevent interest rates from surging at the same time, he said.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Xibalba's picture

They have free press in Japan?  Perhaps we can get some of that in the USA!

King_of_simpletons's picture

Easy money based borrowing /lending tactic will work in a young country. Not Japan where the demographic shift has tilted towards retirees and elderly population.

Coming soon to this country as well.

NotApplicable's picture

Nothing that negative interest rates can't cure!

So What's picture

under the surface of a supposedly advanced society, the japanese society is anything but. Japan society is conformist, corrupt morally, intellectually, just like the rest of the world. A society of cowards and yes men, which I don't give a shit about, until their fuck up , in term of Fukushima, start to come my way. Fukushima will never be cleaned up and they know it. What, more delay. No removing the fuel rod today. We're all fucked as well.

thestarl's picture

In the MSM down here in Oz never much mention of the Fukushima nightmare how on earth will they deal with cleaning up three reactor meltdowns based on their current record of incompetence?

Vampyroteuthis infernalis's picture

They have free press in Japan?  Perhaps we can get some of that in the USA!


I think it is called capitulation.

Spankrupt's picture

Hirohito encouraged suicide bombers. Some things never change.

venturen's picture

they just need illegal they don't deposit and they spend!

Big Johnson's picture

Still can't get my head around the fact that these guys were kicking our ass in WWII. Their govt appears to be just as stupid as our govt.

SDRII's picture

It was a hostile takeover. Just more activist of late.

NoDebt's picture

I bet somewhere in China somebody will be saying the same thing about the US in a generation or two.

SDRII's picture

"We repeatedly warned that the only inflation anyone would see in Japan is in imported energy costs and food prices"

Which is exactly why Japan must sign the TPP. The LNG QPQ in place, all that is needed is to dereg the ag markets.

Problem solved.

Abenomics isn't nearly as interesting as the series of events which led to his rise.

Hatoyama apologizes for wartime atrocities in China

He was removed for failing to redress Okinawa basing agreements.


Japan - China FX swap

Japan island purchase

Japan-China-Korea FTA

Japan's ambassador to China dies amid rising tensions Japan's Finance Minister Commits Suicide on Suicide Prevention Day

US deploys Xband






Rehab Willie's picture

The Japanese don't care, they're too busy playing "Orgasm Wars"


Tinky's picture

"The Failure Of Abenomics In One Chart..."

Congratulations, Tyler! You've just created the first fiat chart. Just one chart – with six stuffed inside. Looking foward to the 9/1 ratio "single" charts in the future.

NOTaREALmerican's picture

This would never happen with gold charts.

NOTaREALmerican's picture

The rumors of Japans impending demise have been ongoing for decades now.  

ElvisDog's picture

Yeah, I've been suffering from "when interest rates rise..." fatigue for a long time now. 

NoDebt's picture

“I think it has become clearer that there is a limit to what monetary policy can do,” Ikeo said.

Fool.  It's what it can do for a few, select individuals that run the system for their own beneift that is unlimited, not what it can do for (to) the economy.  


rp1's picture

The BOJ has already swallowed the market.  They are monetizing the entire debt and whatever else the government decides to spend.  The public supports it, the market likes it, nobody gives a rats ass.  Who does Japan owe money to?  Nobody.  You can short the yen all you want.  It's just a fiat currency.  Its value derives from what you can buy from Japan.  With American millenials trapped in the basement the demand for hentai games could be quite high.  They also have some pretty lean companies with very little debt that can make money long term without inflation and the financial games that engenders.  Their households are in surplus too.  And sentiment?  They are shorting their own stock market as foreigners bid it up.  I think the foreigners are telling them something important.

moneybots's picture

"We repeatedly warned that the only inflation anyone would see in Japan is in imported energy costs and food prices, which in turn would crush real disposable income especially once nominal wage deflation accelerated, which it has for the past 16 months straight. So far this has happened precisely as warned."


Obviously, as warned, no mistake has occurred.  The warning was WILLFULLY AND DELIBERATELY ignored. 

There was deliberate purpose in ignoring the warning.  The U.S. FED has done the same thing. 

Math is.  We aren't in some new era that has never been before.  1+1 has ALWAYS ='d 2.  They know NOT to do what they are and have been doing, yet they do it anyway.  One former FED member apologizes for QE AFTER the fact.  The apology is worthless, especially when he has no ability to change the course from more of the same.

Everything is just so Orwellian, now.

Atomizer's picture

When this accelerated wealth redistribution cameo occurred during 1987, just wait for the next plunge. Thankfully, our US Kenyan President will read from his fluff talk teleprompter and apologize.

Market crash of 1987

The media is still using the same crisis panic prevention buzzwords in 2013. Heeeheeee.

moneybots's picture

 " “People have been deceived by ‘Abenomics,’ ” Yukio Noguchi, a prominent economist and adviser to Waseda University’s Institute of Financial Studies, told The Japan Times in a recent interview. "


People have been deceived all along.

yogibear's picture

Yellen and her 12 PhD Fed head stooges can keep buying Yen with printed money to support Japan. Likewise the BOJ can keep buying dollars in a huge Central bank circle jerk.

The CB Ponzi contunues. All the Central Banksters are laughing about the scam.

Occident Mortal's picture

Pushing on string.

The only way to shift this money is for the Japanese government to borrow the money and build Japan 2.0 off the coast of the homeland or some other equally hideous misallocation.

Pushing string is what I thought would happen in the West, but it didn't. In the West speculators took the money. For some reason I didn't imagine that would happen. It is however also a hideous misallocation.

It's a case of suspended disbelief. A phrase that went out of fashion for some reason?

MedicalQuack's picture

I don't know if you saw 60 Minutes or not but this is why we are needing the billionaire philanthropists more and more that see the reality with extreme giving to counter act the "money sucking code" out's everywhere and people are duped and duped again...

There's no accountability on models out there and everyone thinks that they are all good, not the case as there is good stuff out there but it's mixed in with the bad.  Good book to read "Proofiness, the Dark Arts of Mathematical Deception"..Charles Siefe NYU.  Watch his video and you'll get it.

Peconic Bay's picture

I can't understand how anyone could have possibly thought this policy would be successful. It is a recipe for disaster.

Atomizer's picture

Begin selling chop sticks, egg rolls, and fake Origami masterpieces which are outsourced from China. All you need is a rickshaw or a government subsidized transport to be a success story in the local peasant News Rag.

dudeman's picture

When government debt/tax revenue ratios are very high, a nonlinearity forms. Debt servicing costs move exponentially to shifts in interest rates while tax revenues move linearly to inflation. So inflation actually leads to a default in that scenario. That's exactly where Japan is: there is no way out. The million dollar question is when.

Super Broccoli's picture


no those guys are geniuses,who needs a recovery when you can just print your deficit debasing your currency,  empovershing your population who's left with no money to fuel a nasty inflation that would soar interest rate on your debt ... ? well even if that happens, you can still print more to teach them bastard people of yours how NOT to spend money or grow an economy... BRILLIANT

chump666's picture

Japan is preparing for war, hyper inflated and/or inflation always ends up in a war machine.  And Japan is going all out with Obama's blessing.  He failed in Syria via Russia preparing to shoot down American assets and Israel won't make a move unless sanctioned by Washington, so the conflict will be Japan and China

matrix2012's picture

strange world but real, from GB's link:


What Orgasm Wars reveals about Japan's sexual culture

Don't just chalk it up to the country's "weirdness"


Meet today's two contestants: Ryou Sawai, a heterosexual Japanese porn star with a '90s boy-band haircut, and Takuya, a gay man who owns a bar called Cholesterol. The challenge: Can Takuya bring Sawai to orgasm against his will within 40 minutes?

If you thought Deal or No Deal was high stakes, welcome to Japan's Orgasm Wars.

Considering its scandalously "climactic battle," it's little wonder that the show has been getting a decent amount of attention. But it's more than the fact that it's a 40-minute blow job contest. It's a 40-minute blow job contest that begins with an exchange of bows and business cards, and proceeds to respectful pre blow job discussion featuring "trash-talking" that's as courteous and polite as a tea party.

The combination of sexual temptation, shame, and competition, framed in a formalized setting, is baffling to Americans — and yet it seems to fit with what we've come to view as Japan's "weird" sexual culture.