The Economic Catastrophe That Is Abenomics Sends Japanese Gas Prices To Five Year Highs

Tyler Durden's picture

While we have heard all the usual excuses that "Japan had no other choices" and that Abe simply had to slay the "deflation ogre" (it is still unclear why deflation is bad for the common man, if quite clear why it is disastrous for massively insolvent and overlevered banks) the simple truth is that it was clear from the very beginning that Abenomics would be an abysmal failure. Ironically, in recent months the cheerleaders of Japan's last ditch effort to delay the inevitable have gotten a second wind: "look at all the inflation" they say, and point to it as evidence that Abenomics is indeed working. There is a problem - it is inflation of all the wrong "non-core" items.

That inflation, it was also clear from the beginning, would surge. Read our take on just this from September:

... even the most absurdly clueless economist is silent this morning in their praise of Abenomics, which supposedly has succeeded in its one goal - bringing sexy inflation back. Why? Perhaps the reason is that whereas Keynesian inflation in which prices and wages are broadly if modestly rising as a result of a properly functioning monetary system, is indeed just what the Doctor of modern economics ordered, soaring input costs driven by FX differentials and current account flows, "offset" by plunging wages is precisely the opposite of what Abenomics was supposed to be. Which is exactly what is going on in Japan.



In other words, all that Abenomics' cratering of the Yen has succeeded in doing is causing gas and energy prices, and to a lesser extent food, to surge, just as we warned would happen in February. And of course, to make a few US-based hedge funds investing in the Nikkei that much richer.

In other words, all Japan managed to do is import the bad "non-core" inflation, which has sent food and energy prices through the rood (confused why the rest of the world is suffering from an episode of acute deflation? look no further than deflation-exporting Japan) and made "non-core" purchases like food and gas increasingly more unaffordable to the ordinary Japanese consumer.

Today it just went from bad to worse, because as Nikkei reports, gasoline prices at the pump surged to a 5-year high in Japan this week, due to tax increases.  The Oil Information Center says the average retail price was 164.1 yen, or about 1.6 dollars, per liter, as of April 1st. That's an increase of about 4.9 cents from the previous week.

More from Nikkei:

The average price rose for the 4th straight week, and hit the highest since October 2008.


Japan raised the consumption tax rate from 5 to 8 percent on April 1st. The country also increased the anti-global warming tax on fossil fuel by 0.2 cents per liter.


Officials at the center say gasoline sales will be weak for a while after a rush in demand before the tax hikes. They say prices will level off or rise slightly next week as the weak yen is pushing up costs of imported crude oil.

Actually gasoline sales, and all other sales will be weak for a long, long time. Why? The one reason all the above-mentioned cheerleaders of Abenomics fall strangely silent when it comes to the one all important, beneficial inflation that by now should have arrived. That of wages.

Unfortunately for Japan and those same clueless economist cheerleaders, as we reported on Tuesday, in February Japan announced that not only has there not been any base wage inflation, but wages have now declined for a Lehman-crisis like 21 consecutive months.


So what next?

Well, more pain until the locals get so sick of Abenomics, that Abe meets yet another prematue, Diarrhea-coated exit. Because while the Japanese stock market, which is still down materially YTD and hence instead of providing a "wealth effect" is merely adding to the "misery effect", may provide some temporary solace to those - about 20% or so - who are invested, everyone else is looking at even faster wealth destruction as the value of the Yen continues to slide, as "non-core" products like food and energy continues to rise to multi-year highs, and as wages continue to slide.

This is what we said last time to summarize the dead end Japan is about to crash into head first:

So let's see here: a consumption crippling sales tax increase, soaring input prices which are cratering corporate profit margins just as Abe is really begging firms to hike wages, sliding confidence (which in Japan usually is a leading indicator to government change) as consumers can no longer even afford gasoline, and oh, we almost forget, core deflation. But, hey, look over there, just like in Caracas, the Nikkei is exploding.

All the same is true now. Only this time it's even worse.

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delivered's picture


Thanks for the link but when I clicked on it, I received an error message. Went to the IGWT homepage and found the article which highlighted not just the negative rate but more importantly, how quickly and violently it went from a positive .07 to a negative. The velocity is what is so interesting.

Also, can you provide me a link to a chart that presents the daily GOFO rate? I use to have one from the LBMA that was highly reliable but about 7/10 days ago, the page went dark. So I researched it again on teh LBMA and found a new chart but I can't get it to update. Either the LBMA's site is not functioning properly and/or the change to the site has been screwed up or for some reason, they are making this information more difficult to obtain (to people like myself).

For over a year, like clockwork, accessing GOFO information was no problem. Then the last 7/10 days, nothing but a pain in the ass. Upon all, this is a key rate/data point to watch and follow when evaluating gold.

Any direct link that you can provide me would be much appreciated as the LBMA's site has not been very friendly lately (by mistake or by design, you decide).

spastic_colon's picture

....and how else are you going to keep yen out of the system and causing hyperinflation while keeping sheep on the treadmill than inflating the 2 items who's final mission is to either come out your exhaust pipe or your ass.

alexdg's picture

Inflation... It's a keynesian wet dream.

MeMadMax's picture

Quit fuckin with it and it will fix itself....


Oh, but that would be bad for votes, now wouldn't it...

dtwn's picture

Fuck Keynes.  Fuck Krugman.  In the ass with no lube.


Paging Kyle Bass.  Paging Kyle Bass.  Let's get this shit show that is Japan over with already. . . . . .

NOZZLE's picture

Fiwer up and check oil gasmonkeysan, wong way to FUKUshima for some discount Sashimi.

Anti GOREBULL Wamy tax, whose fucking pocket does that go into CO2GASGORE's?  I mean what do you do with the proceeds from the tax, give it to some government loafer who waves a bag full of icecubes around in the town square to cool the air off?


stant's picture

Who runs barter town?

Darth Raider's picture

and i knocked that post up in a nano second

McMolotov's picture

"Please do not worry."

AdvancingTime's picture


When the yen drops faster than the Japaneses stock market rises it will no longer protect the wealthof those invested within its borders. Japan is the most indebted developed country in the world and its future prospects are dim and getting worse. It is only a matter of time before the yen becomes worthless and as inflation begins to take root it will place upward pressure on Japanese bond yields and raise the cost of government to service its massive debt.

With the BOJ  set to absorb half of the government bonds planned for sale this fiscal year, domestic investors have already started venturing overseas for higher yielding assets. If this turns in to a tsunami of  money fleeing Japan it will constitute the end of the line for those holding both JGBs and the yen. More on this subject below,

sushi's picture

Will be time for a war over the Seppuku Islands.

Silver Garbage Man's picture

I can't believe there is one ounce of precious metals on the shelf anywhere on the planet.

Not Too Important's picture

Japan is blanketed in a layer of fine nuclear fuel rod dust:

'Reactor core materials found almost 500 km from Fukushima plant — 40,000,000,000,000,000,000 Bq/kg — Can travel very, very significant distances — Hot particles found in 25% of samples from Tokyo and Fukushima'

Any guesses how lethal this is? For 10 billion years.

A better question is, what happens to the global economy when Japan dies?

Uber Vandal's picture

If I remember correctly, shouldn't the sun run out of fuel in about 5 billion years, grow into a red giant, and consume its three nearest planets, you know, Mercury, Venus, and Earth before collapsing into a white dwarf, or something like that......


TeraByte's picture

It turns into a gourmet veggie kitchen, when you add to the recipe some EU belly up, lots of Chinese credit vegies and treat the ingredients with US cds smoke. The cold Harakiri soup is waiting for to be served.


eddiebe's picture

Poor bastards are still getting it from behind by Uncle Sam.

msrx3sjj3's picture

I am an expat living in Japan, and i couldnt agree more with this article. In fact, many companies are taking advantage of the sales tax rise to increase prices by well over 3% (as an excuse to recover their eroding profit margins, stemming from higher input costs). In my view, Japan will certainly hit the 2% target, and before you know it that 2% will become 50% and the yen will collapse. The inflation obsession is completely misguided.

notquantumdum's picture

It sure seems to be difficult [if not totally impossible] to solve systemic economic problems -- caused by real things like demographics or bad fiscal policies -- with monetary policies.

Maybe that's because the organic drop in economic demand is caused by actual problems which need to be addressed, and all the "animal spirits" in the world from easy money policies just don't make enough difference without addressing the actual problems.

Just because you might be able to borrow money at a lower interest doesn't make you more likely to invest borrowed money, if you still can't find any investments with a low enough risk-to-reward ratio.  ['Unless you like levering up your losses.]

toadold's picture

I wonder if Mrs. Watanabi will rediscover the traditional joys of the sharpened bicycle or umbrela spoke. Or will Abe be found with a nail gun in his hand.

naughtius maximus's picture

This is definately bullish

syntaxterror's picture

Oh well, when you devalue your currency by 30% to make the rich feel wealthier via spiking various asset values, then it should be no surprise that the cost of everything else shoots up too. 


Philalethian's picture

You hear that giant sucking sound?

That's the sound of your dollars being sucked out of your pockets by the oil oligarchs. Long has it been known oil would be used as the giant vacuum cleaner to clean everyone out! It is the last thing that happens just before the country implodes, and the rats jump off as it sinks. Maybe japan has been picked to be the first to go poof, in moar ways than one?

Reckon time tells about all things. Looking forward to playing in the garden again tomorrow. Might as well support the troops and plant some radioactive food for them. Hard to believe they are all slowly dying like we all are and everyone wants to kill for what, now?


Offthebeach's picture

Maybe a Chinese oligarch will "invite" the Japonese Army into Manchuria to fight "bandits", and pay off in oil.

Oh....wait a minute....

Spungo's picture

I don't understand. Why would exploding capital costs force companies to pay their employees less just to remain profitable?