We have detailed the straitjacket into which the Japanese have been strapped for the past two decades numerous times in the last few years (in great detail here) but as Grant Williams leaned back in his most comfortable chair after reading an article about proposed changes to the GPIF (Government Pension Investment Fund), Japan’s public pension fund; the thought popped into his mind - "Japan really is totally f##ked." What led him to that well-thought-out and eruditely expressed conclusion? Read on...
In an interview with CNN’s Fareed Zakaria earlier this year, Abe explained the true significance of the third arrow:
“What is important about the third arrow, structural reform, is to convince those who resist the steps I am taking and to make them realize that what I have been doing is correct, and by so doing, to engage in structural reform.”
Read that again.
Yes folks, the important part of structural reform in Japan is to convince people that Abe is correct. If he can convince them he is right, they will have engaged in structural reform.
You should be.
This is how Japan works — or doesn’t.
Immigration reform has been widely recognized as the only answer to Japan’s crippling demographic problem for well over three decades. Nothing has been done about it.
How about the “Wage Surprise” — increasing wages on a national basis — hailed by Abe as the key to lifting Japan out of the doldrums, and a key feature of Abenomics?
Markets will eventually tire of Abe’s continual promises that more is coming, so he desperately needs to somehow break the entrenched deflationary attitude in Japan.
(WSJ): In a survey of 1,000 consumers on March 29-30 by broadcaster Fuji News Network, 69% said they had not made any special purchases ahead of the sales tax rise, and 77.4% said they didn’t feel an economic recovery was under way.
Good luck with that attitude problem, Shinzo.
This week we got a look at how Abe is faring with one of his promises, that of guaranteed 2% inflation.
Core CPI (excluding food and energy) rose 1.3% in March — unchanged from the previous month and lower than analyst forecasts.
Of course, that was taken as a sign that further easing by the BoJ would be forthcoming...
And round and round it goes... until it stops.
The briefcase in Pulp Fiction ONLY works because we DON’T find out what is in it.
Abe’s third arrow can be loaded into the bow, but it can’t be fired once and for all, because if it IS fired, the game is up. There will still be continual promises of more to come, and markets may buy into that for a while; but, like all central bank-induced “boom times,” Abenomics has a shelf life, and that is nearing an end.
The changes at the GPIF are potentially disastrous, and Kuroda’s BoJ and Abe’s government are desperately trying to MacGyver their way out of an impossible situation, armed only with hollow promises and faith, when what they really need is duct tape and a Swiss army knife.
Abenomics is a plan by which to change Japanese behaviour; but as anyone who has spent any time in that wonderful, perplexing country will tell you, the Japanese do NOT change their behaviour — even when facing a demographic disaster.
Sorry, but Abenomics is actually nothing at all.
To understand why it's all smoke and mirrors... here is Grant Williams fill letter: