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The Revenge Of A Government On Its People
Submitted by Raul Ilargi Meijer via The Automatic Earth blog,
Arnold Genthe 17th century Iglesia el Carmen, Antigua, Guatemala 1915
I know I’ve written a lot about Japan lately, and that for some it’s been enough for a while, but still, what happens today under the no longer rising sun is going to have such repercussions worldwide that it would be foolish not to pay attention. Moreover, there’s something about what Bank of Japan Governor Haruhiko Kuroda said this morning that both perfectly and painfully illustrates to what depths, economically as well as morally, the country has sunk.
BOJ’s Kuroda Vows To Hit Price Goal, Stands Ready To Do More
Bank of Japan Governor Haruhiko Kuroda, who last week stunned global financial markets by expanding a massive monetary stimulus program, said the central bank is ready to do more to hit its 2% price goal and recharge a tottering economy. Kuroda stressed the BOJ is determined to do whatever it takes to hit the inflation target in two years and vanquish nearly two decades of grinding deflation.
“There’s no change to our policy of trying to achieve 2% inflation at the earliest date possible, with a roughly two-year time horizon in mind,” the central bank chief said in a speech at a seminar on Wednesday. “There are no limits to our policy tools, including purchases of Japanese government bonds .. “The BOJ shocked global financial markets last week by expanding its massive stimulus spending in a stark admission that economic growth and inflation have not picked up as much as expected after a sales tax hike in April.
Kuroda said while inflation expectations have been rising as a trend, the BOJ decided to ease to pre-empt risks that slumping oil prices will slow consumer inflation and delay progress in shaking off the public’s deflationary mind-set.
“In order to completely overcome the chronic disease of deflation, you need to take all your medicine. Half-baked medical treatment will only worsen the symptoms ..” While he stressed that Japan’s economy continued to recover moderately, Kuroda said falling commodity prices could be risks to the outlook if they reflected weakness in global growth.
The Japanese economy was hit hard in Q2, suffering its biggest slump since the global financial crisis after an April sales tax hike dented consumption, and is expected to rebound only moderately in the third quarter as the effects of the higher tax take time to wear off.
Kuroda stuck to his view that the pain from the tax hike will gradually subside, but warned that the BOJ must be mindful of how the higher levy could affect companies’ pricing power, particularly if household spending stagnates. On the yen’s plunge against the dollar after last week’s monetary expansion, Kuroda reiterated his view that overall, a weak yen was positive for Japan’s economy.
You would expect falling oil prices to provide the Japanese, like Americans, with some very welcome, even necessary, financial breathing room. But PM Abe and BoJ’s Kuroda will have none of it. And no matter how you look at it, there’s something at best curious about a central bank that decides to throw ‘free money’ at an economy BECAUSE it sees falling resource prices, which would supposedly make money available already.
What Kuroda in effect says is that he won’t allow the Japanese to profit from, or even feel the relief of, lower oil prices, because they can’t be trusted to spend it. The Japanese government and central bank have no confidence at all – anymore? – that people will spend the money which they save on gas, on something else. They expect for people to, exclusively, sit on those savings. And they’re probably right, which says plenty about how the Japanese people feel about their economy: there is no confidence left whatsoever, not in Abe, not in Kuroda.
Moreover, of course, many, the poorest, the indebted, simply won’t have any extra spending cash even if they do save a few yen on gas. For them, Kuroda’s policies are very damaging. Which further undermines their confidence, and makes more people sit on more money. This goes way beyond a central bank pushing on a string. This is the picture of the trust between a government and its people having been irrevocably broken. And Abenomics doesn’t repair that trust, it only damages it further.
The people don’t trust the government, and the government doesn’t trust the people. Neither thinks the other will deliver what it desires. And since it’s ultimately the government which hold the reins of power, it’s using those reins to throw the people under the bus.
Abe and Kuroda’s ‘logic’ is ‘if the people don’t do what I want them to do, why should I take them into account, or care about them’? The line of thinking is borderline psychopath.
Adding insult to injury, a beggar thy neighbor fall in the yen is supposed to be good for exports, even though that hardly pans out at all so far. It also, and more importantly, makes imported goods more expensive. In Abe and Kuroda’s twisted logic that should drive up prices, but in reality it means people buy even less than before, which accentuates deflation instead of ‘solving’ it. Who do you think Abe blames for this?
And the psychopaths are not done with their people. They not only control the monetary base through what is by now QE9 (not of which, just like in the US, reaches main street), they have also seized control of Japan’s pensions. The rationale is: we’re going to take their pensions and spend them in the casino disguised as the global stock markets, because that MIGHT give a better return that sovereign bonds, especially Japanese ones.
If there’s one thing that’s kept Japan more or less standing upright over the past 25 years, it’s that the vast majority of its wealth was invested domestically. No more. And you might argue this is Japan exporting its deflation across the globe, but at the very least that’s not what pension beneficiaries will experience. They will simply, when markets tumble, see their pensions vanish into thin air.
US Will Benefit Most From Japan’s Pension Fund Reform
U.S. assets will be the biggest benefactor of the Japanese Government Investment Pension Fund’s (GPIF) decision to more than double its target allocation of foreign stocks to 25%, analysts say. The changes to the $1.1 trillion pension fund coincided with the Bank of Japan’s shocking decision to ramp up stimulus on Friday, which sent global equity markets soaring.
“The shift for international equities going to 25% of pension fund holdings is fairly big news,” said Tobias Levkovich, chief equities strategist at Citigroup. “It establishes a new incremental buyer of shares and the U.S. should be a significant beneficiary,” he said. The overall contribution to non-Japanese stocks could approach $60 billion of new purchases, half of which could go to the U.S. by the end of 2015, said Levkovich, noting that stocks on Wall Street should start to feel the benefit this year.
“Foreign investors typically buy large cap stocks which have greater index impact,” he said. “Thus, one cannot ignore the possibility that stock prices jump above our year-end 2014 S&P 500 target on this news.” Other analysts agree. “It’s pretty realistic [that the U.S. will receive most of the benefit] if you look at where the Japanese feel comfortable investing their money,” Uwe Parpart, managing director and head of research at Reorient Financial Markets told CNBC.
“This is a pension fund making the investment they are not going to punt into small caps or anything of that sort, they need large, liquid stocks that over decades have had a reliable return,” he said. But Parpart is not convinced the inflows would make a huge difference to stock market performance. “$30 billion sounds like a lot of money, but stretched over a period of time it’s not going to move markets,” he said. “But obviously it’s a nice shot in the arm.”
Furthermore, an increase in the pension fund’s international bond allocation to 15% from 11% should boost demand for Treasurys, driving further inflows into the U.S., analysts at HSBC said in a note published Tuesday. Meanwhile, the GPIF will reduce its domestic bond allocation to 35% from 60%. “The BoJ’s increase in asset purchases should be more than enough to cover the aggressive reduction in Japanese Government Bond (JGB) holdings planned by the GPIF, allowing JGB yields to stay pinned down,” said Andre de Silva at HSBC.
“Ultra-low JGB yields imply that the relative valuations for other core rates ie. U.S. Treasuries and other bond substitutes have been further enhanced,” he said. “Demand for yield-grabbing would intensify amongst Japanese investors, boosting overseas investments.”
De Silva estimates that over $100 billion could be reallocated into foreign bonds as part of this trend and highlighted U.S. Treasurys as the most attractive for Japanese investors. France, Australia, India and Indonesia government bond markets are attractive alternatives, he said. Japan’s pension fund is under pressure from Prime Minister Shinzo Abe to shift funds to riskier, higher yielding investments to help boost returns, at a time when his Abenomics agenda appears to be running out of steam.
So tell me, what do you think, is this still an attempt to fight – domestic – deflation, or has it become a revenge on the Japanese people for not doing what Abe ‘ordered’ them to do? Note that early this year, he said Abenomics would work if only the people believed it would.
In his view, they let him down. In their view, he’s an abject failure. He is. Unless the Japanese people get rid of Abe and Kuroda real fast, they’re going to cause a lot more destruction. We need to see this in the context of a society in which obedience is considered much more important than in the west.
In Abe and Kuroda’s eyes, the people fail, because they fail to obey their edict of increased spending. The people, too, have a hard time not obeying, but after 20 years of deflation, they find it too risky to go out and spend. That’s not just a deflationary ‘mindset’, as the powers that be would have you believe, it’s something much more real than that.
If the global markets start leaning on Japan, something that may happen any moment now because of its behemoth debt levels, the entire country could start going up in smoke. Abe has given signs of seeking to take the blame for his failures out on China, and the nationalist streak in the population may follow him to an extent, but it doesn’t look like there’s enough trust left.
In that regard, it’s undoubtedly for the better (though we don’t know who will succeed Abe). But it’s still a highly volatile situation that Japan finds itself in, with huge potential downside effects for the whole world because it’s such a large economy that’s failing here.
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I just shorted usd/jpy. There's MASSIVE short interest just above 115.00. That barrier is getting popped early.
Extremely oversold.. I fully expect a retrace back to the 110.00 area. { 38.20 Fibi} of recent move from 105.00 area.
I suspect BoJ indirect intervention over the last (3) days.
SEPPUKU!
nope
Balls of steel. Surely it could go to 1.20 with the BOJ's propensity to do "whatever it takes" like printing a million trillion Yen.
Wait a minute. Japan just magic's up paper 'currency' from nowhere and uses it to 'buy' multi billion dollar American companies. Am I the only one who sees a problem with that?
Analysts say it will be good for the US. Really, how? Looks to me like the Japs just stole a shit load of American companies and the consequence will be a higher stock market.
Maybe it's just me...
Yep and, they get to keep those companies as a consolation prize for destroying the yen.
The one lesson in life that's paid off, time & time again, is to do the opposite of what BOJ does, whether in 1989, 1999 or today.
They are the ultimate, perfect predictor, inversely, of the future.
Japan is about to lose its collective ass (what remains of it) based on deeply flawed BOJ game theory.
Message to the Japanese People from Kuroda and Company:
"Your labor is not respected, your saving are ours, your children have no future."
Gold crowns to be removed from corpses before burial and sent to the BOJ.
Message to Abe and Kuroda from the under-30 Japanese, "Yeah, we're sitting this one out. We'll be underground until you and your kind are gone."
In other words, "All your base are belong to us!"
https://www.youtube.com/watch?v=8fvTxv46ano
Abe and Kuroda's Japan in 2015 is the new Weimar Germany in 1922.
Forward full speed ahead, and damn any data or reason !
The question is, when is the new Sake Putsch gonna happen, and who will be the new Hitler?
Arrest him and throw him the dungeon with Yellen.
Just distinguish the difference in the why, the Bernanke and Yellen are doing it, (deflating the value of the dollar), to pay for unfunded wars and bailouts. Not to mention all that free money for the bankers and to bailout the U.S. pension funds before the crash.
What's happening with usd/jpy looks just like September 2012. Each retrace has been approx. 50%.
Abe is commiting financial suicide. Japan is no longer an export economy. ( trade deficites) China and South Korea, Indonesia, are going to go batshit crazy.
This doesn't end well.
that's why I am on the other side of your trade. More printing and less demand for JPY...
Listen.
Freeze! FBI! Put your hands up.
Yea, were cool like that. FBI bad asses.
Gov vs people.
Contrary to what the article asserts Abe and Kuroda are part of "the West", as in the western empire. They are just additional tools of the USA's (Wall Street) attempt to prop up equity prices. These clowns have no more power to resist Washington than the puppet Merkel, etc.
Right. This is the FED's next move to prop up it's own markets, on the backs of Japanese pensioners.
Boycott Japanese cars and Japanese car parts. Thanks for the cesium, you arrogant assholes.
It is to late to reverse the weak yen policy and wealth is beginning to move out of Japan. It is clear that the prospects for Japan are lousy. Simply put the country is to far in debt to ever pay it off. Remember that Japan has few natural resources and imports raw goods a weak yen will drive up the cost of these imports. The days of huge surplus trade deficits that blessed Japan are gone!
The writing is on the wall. Japan is facing a wall of debt that can only be addressed by printing more money and debasing their currency. This means Japan will be 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. They are past the point where they can return to a "free and fair market" interest rate marketing their bonds to the world and still be able to pay the debt service.
The moment the Japaneses stock market fails to rise enough to offset inflation and the people of Japan realize that even a weaker yen will not help we will see a tsunami of money fleeing Japan. This will 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.
http://brucewilds.blogspot.com/2014/05/japan-sliding-towards-abyss.html
When this doesn't work will Abe commit Seppuku?
The poor Japanese people, hard working, saving oriented and honest, will suffer from more out of control Keynesian economics. How much do they have to suffer?
Why are tax cuts and regulatory reform off the table?
Because it reduces the power of the central planners...
Why don't you deliver it to her personally?
http://wws.princeton.edu/faculty-research/faculty/pkrugman
So, both Japanese and US leaders are disappointed in their subjects.
Not having experienced Japanese leaders on a personal level (hopefully, someone here has), do they suffer from the same malaise as Obama?
Narcissistic personality disorder is a mental disorder in which people have an inflated sense of their own importance and a deep need for admiration. Those with narcissistic personality disorder believe that they're superior to others and have little regard for other people's feelings. But behind this mask of ultra-confidence lies a fragile self-esteem, vulnerable to the slightest criticism
Bingo!
Nice piece.
imo they don't care. the old people don't care, the young people don't care, the authorities don't care. i really think the japanese people expect to be thrown under the bus and they just don't give a damn anymore.
28 years ago, when Congressmen were smashing Panasonic and Sony radios outside Capitol Hill as an expression of their anger at Japan Inc.'s "unfair" ability to build better and sell cheaper than American companies could, the Yen to dollar exchange rate was around 150 to 1, and the BOJ was keeping interest rates about 4% below American interest rates. The entire US computer industry (except IBM) was in danger of going under. Our automakers had lost a third of their marketshare to the Japanese in just 12 years.
Finally, Ronald Reagan told the Japanese that -if they did not "voluntarily" cut back on their exports of autos, computers, and cameras to the United States- he would impose strict quotas on them himself. The Japanese obeyed; and Ronald Reagan saved the American Computer Industry and extended the American auto industry by at least 14 years (until GW and Cheney kicked oil up from $20/barrel to over $80/barrel).
Now if Japan Inc. was so awesome then at 150 yen to the dollar back then, someone explain to me why a depreciating yen would be such a bad thing. Crossing and holding 120 yen to the dollar is as much as Kuroda and Abe can dare to dream about now; but the further it goes the better.
This would be a nightmare come true for South Korea and China of course. But what difference to us would it make if we bought Japanese again like we used to, and bought less from China? Oh-h! That's right! All those "American" companies built factories in China starting 20 years ago.
The Japanese Government are hoping for 2 things:
1 - The USA realizes that it needs a viable Japan as an offset to a strategic threat from China so badly, that it will not pass punitive legislation like it almost did against China a few years ago.
2 - That Japanese Corporations will transfer back to Japan the production capacity,which they have "off-shored" to China. This have to comeback quickly, or there won't be enough high-paying jobs available to the Japanese people for them to absorb the inflation that is coming.
Yes but Yen Carry Trade looks less secure if Japan deflates the Western economies where the Carry Trade ends up funding LBOs etc. Asia needs Western markets for its export model and Western workers will need protectionism to keep employed
inflating the currency stagnates consumption, if we have learned anything over the past decade, we have learned that.
and its easy to see why, as the central bank counterfeits money 100% of the new money ends up in the hands of the most corrupt institutions, its not that you cant trust consumers to spend, its that institutions cant be trusted to lend at fair rates.
when your bank is borrowing at zero cosf and lending at 5% 8% 24% to the end user, all the interest on debt will cause deflation as for every dollar lent over the short term sucks almost two dollars out of circulation.
if you want inflation the quickest way to get it is not to print money, but to discharge debts and free up capital to be spent on productive assets, debt repayment is obsolete under a credit based monetary system when operating at such volumes.
Kuroda wants his 2% and give you the Yen for your carry trades. Why complain ?
Keynes'd to death.
this clown could not get hari kari done correctly but he should keep trying. a**hole
I'm wondering how or if the japanese will react when they start to understand that their pension funds are being exported to the US on a larger scale.
Then again, the just had a county wide contest on who has the best city or prefecture Mascot. So they might be a little distracted right now. Timing is everything.
http://www.japantoday.com/category/national/view/gunma-chan-wins-2014-ma...
They will never understand. The numbers are bigger... right?
So, I guess what I'm seeing here, Japan's debt is too immense, US is where they should put their money. Because, um, 18 trillion in debt is a perfectly fine place to put it.
If you are serious about inflation, just credit everyone's bank account with the equivalent of $1 million. No need to get all fancy with your bonds and such...