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Why Japan Needs A 'Strong' Yen
Unfortunately, Natixis warns, the same error is being repeated by the Bank of Japan. The starting point of their analysis is the contrarian fact that Japan needs a strong yen. Japanese exports are hardly sensitive to their prices; Japan has a large proportion of "necessary" imports (commodities) whose price rises when the yen weakens. Unfortunately, Natixis warns, the Bank of Japan has just increased the size of its quantitative easing program, which will lead to a steeper depreciation of the yen. The only benefit will be a temporary rise in the Nikkei, an automatic result of the conversion of Japanese companies' results into yen. Nothing more...
Via Natixis,
1. Japan needs a strong yen
Japan exports sophisticated, differentiated goods, which explains the low price elasticity of its exports (around 0.1).
Japan’s market share varies very little with the yen (Chart 1): the depreciation since the end of 2012 has not improved this market share.
Furthermore, Japan has a high level of necessary imports, especially commodities (Chart 2).
A depreciation of the yen increases import prices sharply, which reduces wage-earners' purchasing power and consumption (Charts 3A and B).
A strong yen would therefore be positive for Japan:
• It would hardly reduce Japanese exports;
• It would reduce import prices and stimulate domestic demand significantly.
2. But the Bank of Japan has just increased the size of its quantitative easing
Even though a weak yen plunged Japan into recession (Chart 4), the Bank of Japan has just decided to increase the size of its quantitative easing (Chart 5), which will lead to a further depreciation of the yen (Chart 6) and therefore ultimately worsen the recession.
Its only positive effect is that it will lead to a rise in the Nikkei in the short term (Chart 7), particularly due to the conversion of Japanese multinationals’ earnings into yen.
It is therefore difficult to understand this policy.
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One thing I know... No matter how cheap commodities get, Japan is fukishima'ed.
It humorous how the MSM touts over consumption and obesity, yet that is exactly what central banks and corrupt governments are promoting through inflation. (money printing & ZIRP).
Fractional lending is a "one way" street... Fractional lending isn't a conservative idea.
Fractional reserve lending is an idiot's idea.
Fractional reserve lending is an criminal's idea
Fixed it for ya
For the second time today, it's the debt.
Several of us have made this point, but this is really well documented.
Japan's leadership wants and may need inflation, but they will only get that by giving money to workers and consumers, not to banksters and government clowns. What is so difficult about that?
It seems obvious they want it, why do they need it?
As Al suggests below, they made a poor decision to kick the can.
Japan had a mini stock market crash in 1989. They decided to protect the banks, real estate values, and the stock market at all costs. They have been throwing money at the problem with debt and near zero interest rates ever since.
Eventually, the can gets too big to kick;)
Inflation is not the answer. There is no real recovery until all those protected zombies (not just the living dead companies, but the bureaucrats and politicians as well) are put out of their misery. Anything else is merely robbing Sato to pay Tanaka.
Well said, but politicians always take the path of least resistance, and think of the short run, never of justice.
The most common thought process in Washington DC is IBG/YBG.
I'll be gone, you'll be gone.
Realistically, what party has a chance to solve any problems with the DPJ and the LDP running the puppet show. iPhone's have taken over the minds of Japan and the so called leaders will never shoot a gift horse in the mouth.
Indeed. I had hopes for the 2009 Ozawa-led DPJ but he is no longer in charge and there doesn't seem to be any serious reformers lurking in either party now.
and not just the young. middle aged, seniors, rich, poor, working, unemployed, men, women...
all zombies devoid of interpersonal interaction. the night trains in Tokyo were quiet in the old days, but now - the silence is deafening
The Japanese were never the most socially adept people on the planet. Intelligent, occasionally. Socially inept, definitely. They're basically nerds: born, bred and adapted to a 2,000 year-old nerd culture, developed mostly in isolation. But they had their moments.
Now, thanks to the ubiquitous iphone, everybody goes around staring at their thumbs all day. I could post photos of entire urban scenes where no one, no one, is actually looking up and the least bit aware of their environs, much less interacting with it. All day, every day. People bumping into each other on the sidewalk: staring at their thumbs. People on trains, staring at thumbs. People sitting across from each other in cafes, staring at thumbs. A kid on a bike got ran over the other day. He and the auto driver, both staring at thumbs. So yes, even in traffic, they're looking down, staring at thumbs. If you actually do see anyone alert and capable of making eye contact, it's usually some 70+ year old man, and I believe he's looking around wondering: what the fuck happened to my people?
Personal interaction in this atomized, adrift, digital (get it) society consists of nothing more than drones on phones relaying corporate marketing cartoons over social networks. The Japanese have dropped conversation, physical interaction, and even actual words and simply thumb digital emoticons into the void.
It's over. The last generation that knows how to get anything done in the real world is pushing fifty, and the greater mass of youth are a bunch of spoiled children who only know hair, shopping, and of course, cartoons. Nobody's paying attention. If one must first face the present to make a future, then Japan does not have a future.
Drones on phones. Welcome to the Animal Farm. It's important to kindly not panic the sheep before you skin them.
They tried that in the 1990's.
The government gave vouchers to every Japanese household worth (I think) $150 every two weeks.
What did people do? Saved 'em and waited until a friend or acquaintance had to buy something substantial and converted $150 voucher into $120 cash. And saved the cash. All winners....except the Japanese taxpayer.
Keynesian fail at it's funniest!
Isn't Japan's biggest problem that it needs more money than it earns and as such is forced to finance by debt, through bond issuance, which the BOJ then has to buy in order to prevent a rise in interest rates, which therefore results in a weaker yen? Could we stop pretending there's any other agenda, like 'improving the economy'?
I think they're biggest problem is that their motto is, "The nail that sticks out gets the hammer."
Or perhaps, "it rubs the lotion on its skin or else it gets the hose again."
A look at the "National Dept Clock" of Japan and the other three major currencies confirms what you say. If America was not the world reserve currency they would be after us. Having the dollar as the world reserve currency is both a blessing and a curse.
The world is currently engaged in a massive game of speculation and chance that contains a lot of risk. Political considerations and insider deals between both nations and Central Banks play a big roll in this game. A chart I saw recently touted how the percentage of funds held by foreign governments in dollars has fallen in recent years. Even after many countries have reduced their holdings in dollar reserves the dollar still carries a major wallop and place in the world economy and will effect everyone going forward. More on how the dollars role as the reserve currency effects all of us in the article below.
http://brucewilds.blogspot.com/2014/11/reserve-currency-status-both-blessing.html
Al Huxley, you are entirely correct.
The Government of Japan is the most heavily indebted entity on the planet. Debasing the currency reduces the cost of rolling the debt. BOJ buying all new issuance caps interest rates so they can keep making payments.
Everything else is Public Relations voodoo. If you say (in a sheep voice): "j-o-o-o-o-b-s", "g-r-o-o-o-o-w-t-h" on TeeVee enough times, the herd stays in line. They don't understand ponzi mechanics, but they do understand getting out of line is a very bad thing.
When the latest voodoo stops working, you hold snap elections, and the herd gets another serving of bullshit from a new puppet.
When things get bad enough, the globalists within their own oligarchy will push nationalist Japan into a war with nationalist China. Can't have an NWO with all these (ethnically-defined) nations running around can we? The End.
Currency metrix are over the heads of 99.9999999999% of the popultion. First, there is all the mumbo jumbo above. Second, there is the fact that with central banks printing like there is no tomorrow all currencies are falling in aggregate value. Third and finally, no fiat currency has any value.
They trash the yen to serve their masters at the fed. The people there will pay the price for the fed's 'precious metals suck' meme. I suggest they do a Pearl Harbor deal on the BOJ before it's too late..
(already too late, but it sounds more reasonable to act like it can be fixed)
The Fed will pay too. Don't forget that.
The Fed will pay.
no, they need to suicide Abe, just curious if nail guns are prevelant in Japan?
Wasn't long ago Japan had a strong Yen (about 75 to the $). The domestic economy loved it. Unfortunately, Japan is controlled by dreams of the 70s and 80s, a period of economic expansion they will never see again. Still, the bureaucrats and politicians and the dinosaurs running the corporations still believe central planning can work.
Japan has been deluded to believe that their methods were validated by its post war rise when, in fact, the nation rebuilt despite those methods.
Post-war Central planning did work. Because it was simple. There was one source of capital: US Foreign Aid. There was one all-powerful Ministry to oversee its direction: MITI. There was little infrastructure left standing, so it was a simple matter to instruct this Zaibatsu family to build a cement plant, that Zaibatsu family to build a chemical plant, etc. Then said Ministry excludes all competition, foreign and domestic, leading to the growth of the cartelized 70's-80' Japan Inc.
It works because going from 0 to 1 is within the realm of bureaucratic calculation. South Korea followed the exact same model following the Korean War. US Foreign Aid administered by an all powerful infrastructure ministry directing funds to connected families and barring competition. They're called Chaebol. Same cartelized domestic empires, different name. Every Asian Tiger economy of the late 20th century pursued this model, because in the early stage of the development game, it works.
However, bureaucrats and cartels don't respond to signals in complex and mature markets well. Thus the model fails at a given level of complexity. Bureaucrats and cartels also don't like giving up their fiefdoms either. Thus the zombie dinosaurs--cannibalizing their own people to maintain power.
You are entirely correct, however: Japan will never see such economic expansion again under the current Econopolitical System.
The problems of Japan are not an 'error' that can be fixed. None of the world's monetary issues can now be fixed. The way forward is through a painful restructuring of the whole thing.
It will result in most of the world wealth (all it's paper wealth) being abandoned. Debtors will be freed and savers will lose their savings. It is just hyperinflation but possibly with the appearances of deflation. The result will be the same. Whether currencies survive is a question I can't answer but the dollar will definitely be lost because it holds the biggest lies, that so much wealth is available in it.
If there is a panic it could end swiftly. If it plays out as usual then we get the wheelbarrows.
Regardless Japan is screwed and what course of action it chooses is unimportant.
As my old weight lifting coach said, "Pain is good."
Japan is running a trade deficit, reducing consumer spending on foreign goods and foreign inputs is one of the aims of devaluation.
It's a feature, not a bug.
It is therefore difficult to understand this policy.
It is not difficult to understand this policy. Abe, Kuroda and Aso have been ordered to save USD and US economy by weaking yen (sell yen and purchase US treasuries.). They are not making any policies for the Japaneses economy or Japanese. They are following the orders of Japan handlers.
When this world economic crash has run its course, the textbooks may read: "The powers-that-be tried to save their system by every tactic they had available - but they failed, resulting in a painful economic restructuring."
So, looking ahead, which countries will do OK after the economic reset? Japan may be one of them. Even though Japan has a demographic disadvantage (many old people), it also has:
- an educated, hard working population,
- technology, and good infrastructure,
- land on which to grow food, and
- a history of recovery from difficulty (post-WWII).
And Japan does not have the disadvantages that will tear many countries apart, during an economic reset, for example:
- no religious factions that hate each other,
- no ethnic divisions that violently oppose each other,
- no lawless, unproductive, uneducated underclass,
- no huge portion of their population used to dependence on government support
Their work ethic and ability to work together (instead of against each other), is a huge asset and will be a huge advantage.
Instead of turning on each other and cannibalizing their country, they will all be pulling together in the same direction. They will not be blaming each other, but will be moving together toward recovery, while many other countries will descend into the chaos of failed states - genocide, starvation, tyranny.
OMG! Rereading this comment I made above, can not believe I wrote it, it is like so true!
Post-Ponzi multikult USSA will make the unraveling of the Balkans look like a Sunday picnic. True, Japan will not face this problem.
However, the One World Vision does not allow for contiguous ethno-states. Japan and China will be pushed into war: the East Asian version of WWI. Neither will come out in one piece. To the International Instigators go the spoils.
Who needs pushing? China is trying to annex the whole fucking Indian ocean.