Goldman Slams Abenomics; Questions "Validity Of BoJ's Target"

Tyler Durden's picture


While we have again and again explained why Abenomics is ultimately doomed as you simply cannot print your way to prosperity (a message The Fed appears to be discovering rapidly), when Goldman Sachs unleashes an Abenomics-bashing piece, one has to wonder just what options Abe has left as economic data starts to collapse (and approval ratings drop just as fast).

Via Goldman Sachs,

Corporate pricing bearish again on falling demand after post-tax hike


The April core CPI, the first reading after the VAT hike, came in at +1.5% (excluding the tax hike impact), an increase from +1.3% in March. Some market observers have pointed to a more bullish corporate stance on pricing as one of the reasons. We used the University of Tokyo Daily Price Index to examine how consumers have been reacting to this aggressive pricing and in turn how companies have adjusted their pricing approach.


Plotting the daily price and sales before and after this year’s tax hike (on April 1) and the previous tax hike (in April 1997), we see two interesting points: (1) corporate pricing is definitely more aggressive just after this year’s tax hike, and (2) a meaningful change can be seen in the price-sales relationship after this year’s hike. Statistically, a significant relationship between price and sales is not visible before this year’s tax hike, but a strong negative correlation is evident after the tax hike.




It is noteworthy that the sensitivity of sales in response to price changes after the April 2014 tax hike was more than double that after the April 1997 tax hike.


This implies that consumers have been forced to reduce spending in response to more aggressive corporate pricing. Seeing signs of a large falloff in consumption, companies lowered prices in mid-April as they searched for a new equilibrium. Ultimately, though, prices have not exceeded year-earlier levels even once since mid-June, indicating that companies are turning more bearish on pricing again.


There is no question that consumers have been compelled to cut spending after the tax hike as aggressive corporate pricing has exacerbated a large decline in real wages, despite successful spring wage negotiations. We think this situation is likely to persist barring major changes in the current wage environment, and hence we expect companies to maintain a passive and bearish pricing stance. We think this trend will affect CPI before long and continue even after the summer. We still question the validity of the BOJ’s 2% inflation scenario and will closely watch trends in the UTokyo’s index for the light it sheds on this.

*  *  *

But the Progressives Told Us Abenomics Would Be Great for Japan

* * *

Apparently Goldman has shifted its perspective on the J-Curve recovery ever returning... as we suggested previously

On the terrible missing J-Curve (via Patrick Barron of the Ludwig von Mises Institute of Canada):

Perhaps I can shed some light on Japanese Prime Minister Abe’s missing J-curve; i.e., why Japan’s trade deficit seems to be increasing rather than decreasing after massive monetary intervention to reduce the purchasing power of the yen. Monetary debasement does NOT result in an economic recovery, because no nation can force another to pay for its recovery.


Monetary debasement transfers wealth within an economy by subsidizing exports at the expense of the entire economy, but this effect is delayed as the new money works it way from first receivers of the new money to later receivers. The BOJ gives more yen to buyers using dollars, euros, and other currencies, as the article states, but this is nothing more than a gift to foreigners that is funneled through exporters. Because exporters are the first receivers of the new money, they buy resources at existing prices and make large profits. As most have noted, exporters have seen a surge in their share prices, but this is exactly what one should expect when government taxes all to give to the few.


Eventually the monetary debasement raises all costs and this initial benefit to exporters vanishes. Then the country is left with a depleted capital base and a higher price level. What a great policy!


The good news is that Japan does know how to rebuild its economy. It did it the old-fashioned way seventy years ago–hard work and savings.

And the latest joke from Asian trading floors: "when asked what he thought of the recovery, Shinzo Abe responded "Depends!""

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Fri, 07/18/2014 - 21:56 | 4976199 Slave
Slave's picture

I just shit my pants and popped a boner at the same time.

Which one do I take care of first?

Fri, 07/18/2014 - 21:58 | 4976206 BeetleBailey
BeetleBailey's picture

one hand on the shaft....the other on the wiper....

but that's nothing....

I just sharted, sneezed, coughed and belched in a space of 7 seconds...

I thought I was going to die smelling like a shit salami sammich....

...but I didn't...and I wallowed in the stink....

good thing I go commando....oh wait

Fri, 07/18/2014 - 22:04 | 4976220 markmotive
markmotive's picture

Japan is broken and nationalism is on the rise.

WWIII may start in Asia after-all...

Sat, 07/19/2014 - 10:41 | 4976840 Thought Processor
Thought Processor's picture



Printing works until it doesn't.  And the shift between the two is usually sharp and brutal.  


History has proved this.  Kyle Bass is right, it's just a matter of time.

Sat, 07/19/2014 - 10:51 | 4976861 Escrava Isaura
Escrava Isaura's picture

Thought Processor says, "Kyle Bass is right" .... then, "history has proved"

C'mon processor, Kyle Bass? You’re a sure drinking the Kool-Aid.

And how is history right?

Fri, 07/18/2014 - 22:01 | 4976216 TeamDepends
TeamDepends's picture

Squid eat too much glow sushi. Shame/ funny/too bad/adios.

Fri, 07/18/2014 - 22:05 | 4976223 Yen Cross
Yen Cross's picture

The usd/jpy is going to get slammed down hard, before it goes thermal nuclear. I have my orders top side in. The market knows it. The weak longs need to get blown out before it goes up.

Fri, 07/18/2014 - 22:09 | 4976235 BeetleBailey
BeetleBailey's picture me on here....we need to talk dude

Fri, 07/18/2014 - 22:14 | 4976249 Yen Cross
Yen Cross's picture

 Can we talk over the W/E?  I'm spent and need some rest. I'll open my Z/H chat over the weekend.

  I have you on my list of z/h friends.

Fri, 07/18/2014 - 22:23 | 4976271 Manthong
Fri, 07/18/2014 - 22:43 | 4976312 Yen Cross
Yen Cross's picture

  Thank you Manthong. I'm off to get some rest. Have a good evening /day (southern hemisphere) everyone.

Fri, 07/18/2014 - 22:17 | 4976253 medium giraffe
medium giraffe's picture

Yep.  Waiting until the vol blows back into town, but when it does, will be an interesting ride for certain.

Fri, 07/18/2014 - 22:07 | 4976232 BeetleBailey
BeetleBailey's picture

FUCK Goldman Sachs...


I know ZH has to follow this criminal band of.......motherfuckin douchebags.....but I say again...with gusto...

FUCK Goldman Sachs

Sat, 07/19/2014 - 08:02 | 4976643 Bossman1967
Bossman1967's picture

part of the NWO and wish all the big guys take the dirt nap they deserve.

Fri, 07/18/2014 - 22:10 | 4976240 Yen Cross
Yen Cross's picture

 What really "chaps my hide", is the fact that BoJ thinks they can print and buy any fucking thing on planet Earth with impunity!

  The fallout from the BoJ diversification is going to be nasty!

Fri, 07/18/2014 - 22:16 | 4976254 NoDebt
NoDebt's picture

Pot calling the kettle black.  We're on the same path, just a couple decades behind them.

Fri, 07/18/2014 - 22:30 | 4976284 Manthong
Manthong's picture

Maybe not that far behind.. no one out here knows what's really on the Feds ledgers and Yellen ain't tellin'. 

Sat, 07/19/2014 - 08:27 | 4976486 Escrava Isaura
Escrava Isaura's picture

NoDebt  says: A couple decades behind them?

NoDebt, I was in the impression that the British is ahead. Followed by America, Germany, Japan, and now China. Actually, make that pretty much the whole world.

And listening to Goldman Saks? Have you all no shame?

Fri, 07/18/2014 - 22:18 | 4976260 Fuku Ben
Fuku Ben's picture

Abe's Depends better be prepared to hold a massive dump

Sat, 07/19/2014 - 01:32 | 4976473 Spungo
Spungo's picture

Why don't they just try to print their way out of this?

Sat, 07/19/2014 - 07:14 | 4976622 Wahooo
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If you are the maintainer of this site, please check your database settings in the settings.php file and ensure that your hosting provider's database server is running. For more help, see the handbook, or contact your hosting provider.

Sat, 07/19/2014 - 07:16 | 4976623 Wahooo
Wahooo's picture

If you are the maintainer of this site, please check your database settings in the settings.php file and ensure that your hosting provider's database server is running. For more help, see the handbook, or contact your hosting provider.

Sat, 07/19/2014 - 07:40 | 4976634 WTFUD
WTFUD's picture

When Shitzo Abe requires dump he clears with GS first. The chip in the back of his head programs desired action to take.

Sat, 07/19/2014 - 07:43 | 4976637 WTFUD
WTFUD's picture

When Shitzo Abe requires dump he clears with GS first. The chip in the back of his head programs desired action to take.

Sat, 07/19/2014 - 09:12 | 4976672 Quinvarius
Sat, 07/19/2014 - 09:16 | 4976679 buzzsaw99
buzzsaw99's picture

the squid is complaining about gubbermint taxes going to the few? they have big ballz.

Sat, 07/19/2014 - 10:40 | 4976836 yogibear
yogibear's picture

LOL, the US Federal Reserve gets to see their twisted Keynesian infinite printing experiment implode.

Then it's the US.

Bernanke, Greenspan and Yellen will all deny it was the US Fed pulling the strings attached to the BOJ.

Just like Bernanke's statement that the bankster housing CDO fraud was contained. The BS only works for a while. 

Sat, 07/19/2014 - 18:01 | 4978050 AdvancingTime
AdvancingTime's picture

 Japan is facing a wall of debt that can only be addressed by printing more money and debasing their currency. This means paying off their debt with worthless yen where possible and in many cases defaulting on promises made. Japan's public debt, which stands at around 230% of its GDP and is the highest in the industrialized world.

 The moment the Japaneses stock market fails to rise enough to offset inflation this will turn into a tsunami of  money fleeing Japan and constitute the end of the line for those left holding both JGBs and the yen. This has been a long time coming and I contend the cross-border flow of money leaving Japan is why some stock markets have remained so resilient . When Japan crumbles it will be felt across the world. More on this subject in the article below.


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