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: