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JPY Confounded As Abe Cornered By Inflation/Spending Dilemma

Tyler Durden's picture




 

When Abe, Kuroda, and their merry men unveiled their latest idea - Abenomics - the world's macro tourists piled in and spent every waking second convincing the rest of the world's suckers that this time was different for Japan. We, along with Kyle Bass and a short list of other realists, warned "be careful what you wish for." It seems tonight's data is the best example yet of the print-and-grow rock and inflate-and-die hard place that Abe finds himself between. Multi-year highs in inflation (pressing on to the BoJ's target) combined with a total collapse in household spending (lowest in 27 months). Abe is cornered; and JPY and the Nikkei are confounded for now.

 

Yay - "inflation is rising just as we hoped" Abe pats himself on the back... "must be all those small firms raising wages by the equivalent of 4 Big Macs per month... oh and all the currency devaluation that has spiked our energy import costs... but that's ok coz it's not deflation"

 

And this:

  • NEWS: JAPAN FEB CPI ENERGY COSTS +5.8% Y/Y VS JAN +6.9%
  • NEWS: JAPAN FEB CPI ELECTRONICS GOODS +6.3% Y/Y VS JAN +4.7%
  • NEWS: JAPAN FEB CPI FOOD EX-PERISHABLES +0.9% Y/Y; JAN +1.0%
  • NEWS: JAPAN FEB CPI TVS +5.8% Y/Y VS JAN +3.7%
  • NEWS: JAPAN FY13 CENTRAL TOKYO CORE CPI +0.4%, 1ST RISE IN 5 YEARS

 

But... said a quiet voice from the back... "the household is getting monkeyhammered by the higher prices and de minimus wage rises"... "how will we ever raise the consumption tax in this environment - which we need to do to show the world we have some fiscal responsibility - without crushing the economy entirely/"

  • NEWS: JAPAN FEB HOUSEHOLD SPENDING -2.5% Y/Y; MNI MEDIAN +0.1%

 

 

Yes we know it snowed in Tokyo for a few days but come on...

Abe is totally cornered...

If Kuroda eases anymore to satsfy weak economic data, he risks runaway inflation which would leave BoJ in a vicious circle to soak up the JGB selling...

 

If Abe raises the consumption tax without easing monetary policy even more then the economy is just not able to handle it...

Of course, it didn't take long for the sell-side to pull every trick in the book...

From Citi -

Print more...

  • Expect additional BOJ easing in June or July, will drive yen to 108-110 per dollar
  • CITIGROUP SEES ADDITIONAL BOJ EASING TO DRIVE DOWN YEN

And re-allocate more...

“We are somewhat bemused by growing expectations in the market that reform of Government Pension and Investment Fund will result in yen selling”

Conservative estimate of GPIF reallocation to 50% weighting JPY bonds would see 1 tln yen/yr of JPY sales, maybe less

 

Just ignore the spike in import costs and crushing pressure on the household's pocketbook that has just been proved.

In summary:

 

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Thu, 03/27/2014 - 20:08 | 4600870 IndicaTive
IndicaTive's picture

At this point, they'll just add another ring to the circus. Right?

Thu, 03/27/2014 - 20:20 | 4600920 prains
prains's picture

paging Mr. Bass please pick up the courtesy phone at concierge

Thu, 03/27/2014 - 20:45 | 4600996 remain calm
remain calm's picture

Kyle its JPM on the phone.

Jamie " Can we settle on your position"

Kyle " Fuck you Jamie, your a miserable banker and you are going down on this one"

Jamiie "Never, I got the Fed in my corner"

Kyle " They are next"

Thu, 03/27/2014 - 21:00 | 4601050 NoDebt
NoDebt's picture

Back when I was an economics student I aced everything in MacroEc.  My strong suit was monetary policy.  No matter what the question, the answer is always "increase the money supply".  

Thu, 03/27/2014 - 21:25 | 4601116 remain calm
remain calm's picture

Thanks John Maynard, but you like your theories are dead.

Thu, 03/27/2014 - 22:15 | 4601279 philipat
philipat's picture

Does this present an opportunity to export Krugman?

Fri, 03/28/2014 - 09:38 | 4602203 asteroids
asteroids's picture

As a species Economists are morons. The Krugmannnn and its ilk think they can defeat the laws of nature and physics. Just print more. What dopes. They sure did sucker in the Japanese.

Thu, 03/27/2014 - 20:09 | 4600873 jmcadg
jmcadg's picture

The Nikkei is kickin' ass on this great news!

Thu, 03/27/2014 - 20:09 | 4600876 NOTaREALmerican
NOTaREALmerican's picture

Quick, to the batmobile, Krugman.   We must neutralize the Austerity Death Ray with our "Keynesian" debt bomb!

na na na na na 
na na na na na BATMAN!!

Thu, 03/27/2014 - 20:12 | 4600890 symtex411
symtex411's picture

so is this bullish <<<<

or more bullish <<<<

Thu, 03/27/2014 - 20:37 | 4600976 Slave
Slave's picture

Don't waste your time asking when you could be buying!

 

 

bitch

Thu, 03/27/2014 - 21:07 | 4601072 bubblemania
bubblemania's picture

Bullish!

Thu, 03/27/2014 - 20:13 | 4600893 CynicalBastard
CynicalBastard's picture

Who is dumber? The one who crushes their own currency, spikes inflation and rapes consumers --OR-- the one who watches another country do it and STILL, like a Krugmanesque zombie, follows willingly into their abyss?

Thu, 03/27/2014 - 20:13 | 4600897 MrSteve
MrSteve's picture

with the nikk225 hitting the skids, bet your correlated global economy the SP500 won't be far behind in tanking by a significant percentage.

Thu, 03/27/2014 - 20:23 | 4600930 evernewecon
evernewecon's picture

 

 

 

 

Maybe stuck between spending/inflation's

why he's given up choosing between 

more nuclear power and more CO2

emissions.

 

It looks like he'll welcome both.

 

http://www.truth-out.org/news/item/22681-the-myth-of-nuclear-safety-fuku...

 

 

http://aosis.org/for-immediate-release-japans-new-target-puts-small-isla...

 

 

 

To me the ideal is democracy here,

democracy there, and cooperate.

 

 

Brazil and India appear to be 

getting into the swing of things.

 

http://www.zdnet.com/brazil-passes-groundbreaking-internet-governance-bi...

 

http://www.nbr.org/research/activity.aspx?id=409

 

Also, since breaking from the U.S. 

Fed's policy and letting rates rise

a bit, commensurate with accelerated

bank loss taking, India's currency has

in fact kept firming slowly, though

I personally don't give advice/make

forecasts (I don't know it it'll 

rain tonight where I am.)

 

 

 

Thu, 03/27/2014 - 20:24 | 4600934 Spungo
Spungo's picture

"The Nikkei is kickin' ass on this great news!"

As it should. The BoJ has flat out stated they plan to destroy the currency and crash the bond market. Most Japanese people are heavily invested in bonds, which are the worst possible thing to own during a bond market crash. The smart thing would be to dump all of your bonds then buy things like stocks and real estate.

Thu, 03/27/2014 - 21:29 | 4601140 ThroxxOfVron
ThroxxOfVron's picture

But I thought Abe was buying JGBs and Stocks.  

Japan bought Tepco, right?  

Yr. right , real estate never goes down.   Maybe Japan should buy the Senkaku Islands.

Thu, 03/27/2014 - 21:32 | 4601145 RiverRoad
RiverRoad's picture

Take a good long look.....the same fate awaits us.

Thu, 03/27/2014 - 22:36 | 4601337 khakuda
khakuda's picture

Yay! We got rid of dangerously low prices and raised cost of living. Now, everything better. Genius.

Thu, 03/27/2014 - 22:46 | 4601365 AdvancingTime
AdvancingTime's picture

If investors in Japan's government bonds begin to believe that Abenomics will be successful in dropping the value of the yen and in bringing back inflation it would be logical for owners of JGBs to move out of the securities and buy foreign bonds or equities. This will place upward pressure on Japanese bond yields and raise the cost of government to service its massive debt.

Domestic investors have already started venturing overseas for higher yielding assets. If the value of the yen falls more than the stock values in Japan rise getting money out of Japan will be the only way to protect your wealth. As this turns in to a tsunami of money fleeing Japan and becomes a feed back loop that fuels itself it will constitute the end of the line for those holding both JGBs and the yen. Details below,

http://brucewilds.blogspot.com/2013/08/japans-economy-going-forward.html

Do NOT follow this link or you will be banned from the site!