Japan To Downgrade Economic Assessment In April, So More BOJ QE Right? (Spoiler Alert: No)

Tyler Durden's picture

Moments ago the Nikkei strategically leaked a report that the Japanese cabinet office, quite expectedly, will downgrade its economic assessment in its April report. "Expected" because as we reported, discretionary spending following the  sales tax hike, has gotten crushed. Also not unexpected, the USDJPY took the news in stride and posted a modest bounce in the face of today's relentless selling of the pair. Why? Because to algos and many asset managers desperate for even more training wheels from central banks (now that everyone has forgotten how to trade based soely on fundamentals), this means more QE from the BOJ right - after all horrible news for everyone is great news for the 1%.

Not so fast.

As the Japan Times reported yesterday paraphrasing Bloomberg, while the BOJ has succeeded in boosting inflation to near scorching levels, mostly for such "trivial" items as energy and food prices, it has failed miserably in raising wages which as we have been reporting, have failed to post even one increase in 21 consecutive months! As a result, "Prime Minister Shinzo Abe’s bid to vault Japan out of 15 years of deflation risks losing public support by spurring too much inflation too quickly as companies add extra price increases to this month’s sales tax bump."

Said otherwise: more QE may well be the straw that breaks the camel's back of Abe's cabinet support, and unleashes another Imodium-inspired exit stage left for the premier whose second attempt at fixing Japan will surely fizzle as badly, if not worse, as his first one.

The report goes on:

Businesses from Suntory Beverage and Food Ltd. to beef bowl chain Yoshinoya Holdings Co. have raised costs more than the 3 percentage point levy increase. This month’s inflation rate could be 3.5 percent, the fastest since 1982, according to Yoshiki Shinke, the most accurate forecaster of the economy for two years running in data compiled by Bloomberg.


The challenge for Abe and the Bank of Japan is to keep the public focused on the long-term benefits of exiting deflation when wages are yet to pick up and, according to BOJ board member Sayuri Shirai, most people still see price gains as “unfavorable.” Any jump in inflation that’s perceived as excessive by a population more used to prices falling could worsen consumer confidence and make it harder to boost growth.


“Households are already seeing their real incomes eroding and it will get worse with faster inflation,” said Taro Saito, director of economic research at NLI Research Institute, who says he’s seen prices of Chinese food and coffee rising more than the sales levy. “Consumer spending will weaken and a rebound in the economy will lack strength, putting Abe in a difficult position.”

And something missing in central banker jargon: logic.

Accelerated inflation would squeeze households, with wages excluding overtime and bonuses declining in February for a 21st straight month, down 0.3 percent from a year earlier, according to April 1 labor ministry data. Saito, ranked No. 3 forecaster last year, sees the risk of a 3.6 percent increase in the April core consumer price index, which excludes fresh food but not energy, after a 1.3 percent gain in February.

Even Goldman is cited:

Consumer sentiment has been undermined to a large extent by rising prices,” wrote Goldman Sachs Group Inc. economists Naohiko Baba and Yuriko Tanaka in an April 12 note, predicting “a major retreat in sentiment from April as the tax hike drives inflation.”

And the punchline for all the liquidity and bail out addicts:

An acceleration in inflation would mean it’s “very unlikely” the central bank will bolster stimulus, said Saito. Shinke said while faster price gains could prompt economists to push back the projected timing of further easing, BOJ policy will depend on the economy.


Shinke sees two potential paths for the economy after a inflation surge. Under one scenario, households cut spending, with a weak economic rebound from a slump after the sales tax hike putting “Abenomics” at risk. Under the other, consumer spending bounces back, supported by a tight labor market that lifts incomes.


“High inflation could push the economy either way,” said Shinke.

So while in this case bad news is certainly bad for the economy, the already scorching inflation will mean that just like the ECB, but for different reasons, the BOJ is now stuck - the economy is once again foundering but Kuroda suddenly finds himself unable to do much more to stimulate the "wealth effect" which has failed at boosting that all important component of bening inflation: wages.

Which means that all algos hoping for more horrible news out of Plan B Japan, which will provide at least a brief hiatus from the beta and momo selling, may want to be recalibrated, and to finally index their BOJ QE expectations to surging prices that threaten to send Japan into all out recession once again. A recession which most likely was assured with the April 1 tax hike anyway.

It also means that like the rest of the global central banks, Kuroda and Abe will be forced to talk up the chance of QE "any minute now"... however never actually dare to push the switch.

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Looney's picture

Abe-gnomics in action! ;-)


WhyDoesItHurtWhen iPee's picture

You always add moar debt to fix a debt problem, everyone knows that.

Thought Processor's picture




They are going to need a really big war over the Ukraine in order to distract everyone from the first implosion domino that is Japan.  Should be quite the show.


Once Japan starts shitting the bed the Ukraine will need to take the front seat in ushering in the reset.  

The Ukraine will simply be used as the excuse for all the economic and market turmoil.

X_mloclaM's picture

They are going to need a really big war over the Ukraine in order to distract everyone from the first implosion domino that is Japan

It also just so happens to be Riskportant

Grande Tetons's picture

Hey, the Japanese are the guys who flew suicide missions, correct? They will print more. The plane has taken off and she is not coming home. 

ArkansasAngie's picture

And ... left unsaid ... election of current shatheads in jeopardy if peons can’t feed themselves.  Diets piss people off.

 Leave no incumbent in office 


SheepDog-One's picture

Probably reached the point where no matter what they do, it all goes down from here, diminishing returns, turnip squeezed dry.

NOTaREALmerican's picture

Weather must have been really bad in Japan this winter.   I'm sure things will pick-up in the summer tho.

JustObserving's picture

The BOJ should just borrow a few of the Fed's HFT computers to levitate their markets.  That will solve all their problems as the wealth effect from manipulated markets solves everything.

Yen Cross's picture

  I swear, Kuroda & Abe make a better comedy team than Laurel & Hardy... cue theme song from the "Adam's Family".

Grande Tetons's picture

One day we will wake up an the USD/JPY will be at 115 or 120. I think you wrote that not so long ago.  Given that these fuckers need shock value that just may happen. 


TruthInSunshine's picture

The PRECISE same thing is happening right now in the US.

Real inflation (especially relating to constituent necessities of life, such as food, energy, healthcare, etc.) is easily clipping along at 5.5% to 7%, while real median wages are in decline.

Inflation, once it builds up a dense head of steam, is a hard & fast locomotive.

The Fed should have started hiking rates well over a year ago (this unemployment/underemployment they claim to target is STRUCTURAL).

fonzannoon's picture

the great bluff all along was that the fed wou;d/could raise interest rates. If that was teh case they would be. Instead they will continue to try to push the current inflationary trend under the rug.

Four chan's picture

the reverce of the rule of 72 is also true the rate of inflation decreases you money by half every 10 years at 7%. now get to work slaves.

Orly's picture

And finally, Kyle Bass' ideas come to fruition.  Abe and Kuroda are out of ammo.

Sell yen.

It's over for Japan.


X_mloclaM's picture

in gold terms or Gartman terms?

zh pzwnzing it up

NEOSERF's picture

Crazy like a fox...leak the bad news, take the market down, and then rescind the tax, wallaa...1000 pt "recovery"