Get long 'Depends' may be the most befitting headline for tonight's massive macro miss in Japan. For the 3rd quarter in a row, Japanese GDP missed expectations with a meager +1.0% annualized growth (versus a +2.8% expectation), and a tiny 0.3% Q/Q change vs expectations of a 0.7% increase, this is the biggest miss and slowest growth since Abe retook the economic throne after his chronic-diarrhea-prone first attempt to save the nation. No matter how hard they try to spin this, there's no silver lining as consumer and business spending missed expectations notably and the only Tokyo snow fell just last week so long after the quarter was over... and this is before a tax hike that is aimed at showing how fiscally responsible the nation and not simply an insolvent ponzi scheme alive through the good graces of the greater fools of leveraged carry trades.
Japanese GDP... oops
Breakdown by component (source):
For a few brief hours there, Japanese stocks bullishly disconnected from USDJPY, then reality hit and it caved...
Think that Ito's earlier comments on the nation's pension fund allocations will save them:
- GPIF SHOULD INCREASE ANNUAL RETURN TARGET TO 5%, ITO SAYS
- JAPAN'S GPIF SHOULD PUT HALF ASSETS IN STOCKS, ITO SAYS
- GPIF SHOULD CUT BOND HOLDINGS TO 40% WITHIN TWO YEARS: ITO
... Think again - for as obviously bulltarded as those statements are.. As The FT reported earlier:
The head of Japan’s Government Pension Investment Fund has hit out at pressure to rebalance its bond-heavy portfolio, arguing that his Y124tn ($1.2tn)-in-assets institution should not be used as a tool to push up stock prices.
... in an interview with the Financial Times, GPIF president Takahiro Mitani said such demands were unfair on an institution that has been functionally independent from government since 2006. The FSA “should be doing what they are supposed to be doing, without asking too much from us,” he said, adding that the calls for trillions of yen of bond sales from panel chairman Takatoshi Ito showed he “lacks understanding of the practical issues of this portfolio.”
“Our sole objective is not to invest so that the Japanese economy will be better; our job is to invest the people’s money in a safe and efficient manner so we can protect and manage their funds.”
It seems that Mitani (who is advised to avoid hot tubs and certainly nail guns) as the last sane voice in Japan just explained the un-independence of everything that is occurring... and remember, as Kyle Bass once wrote,
"There is no way out" for Japan - it's a matter of when not if. And "if there is no way out for them, there is no way out for the rest of us - unless we change the way we operate."
For those who see this dismal number as in some way implying the BoJ will print more money and everything will be fine... this little anecdote should shut them up...
Recently, a Hayman Capital representative had dinner with a key member of the Bank of Japan and was afforded the opportunity to question him about the expansion of the BOJ’s balance sheet to purchase Japanese Government Bonds (“JGB”) (monetizing debt). The BOJ representative had just finished a statement where he denounced monetization of debts when we asked him how he defines monetization (we define it as central bank balance sheet expansion in order to purchase sovereign debt).
After a long pause, he said “It is only monetization when the market tells us it is monetization. When yields go up, not down, when we buy bonds, then the market says we are monetizing.”
When we pressed further, he acknowledged it was out of the hands of the BOJ and entirely up to market psychology. Wow, we wonder how that makes JGB investors feel.
In other words, be careful what you wish for...
and As Hayman's Kyle Bass previously added:
During my trip to Kyoto, I was introduced to a Japanese phrase that encapsulated the strangely fatalistic viewpoint that many local Japanese market participants have toward the twin threats of debt and deflation. This concept explains a resignation to the unfolding of events and a willingness to submit to this unfortunate reality rather than to fight a seemingly inevitable or impossible challenge.
It seems apposite to reprint it here as we watch the beginning of this endgame in the Japanese debt markets unfold:
“Shikata ga nai”
It cannot be helped...
And in the meantime, the Japanese stock market has given up all its outperformance over the Dow since the BoJ unveiled QQE to save the world...