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Yellen & Kuroda Live In A "Fantasy Fiat World Divorced From Actual Business Conduct"
Submitted by Jeffrey Snider via Alhambra Investment Partners,
There must be a universal speech template included in the monetary textbook that is shared among the various central banks. On September 28, 2015, Haruhiko Kuroda, Governor of the Bank of Japan, delivered a speech that wasn’t just similar to the press conference Janet Yellen had endured only a week or so before, it was a close enough replica that if stripped of geographic references would have made it impossible to determine who was giving the speech. Kuroda did as Yellen did, making a specific point to emphasize how “robust” the Japanese economy was showing itself in 2015 before trying his best to explain away all the ways in which it was not.
Saying, “First, domestic private demand has continued to be robust” Kuroda then listed factors that were only slightly related to “domestic demand.” Rather than find specific economic accounts performing as he suggested, the Governor was instead reliant on surveys. “Firms’ positive fixed investment stance could be confirmed by various survey results.”
For Japanese households, Kuroda followed as his American counterparts by leading with the declining unemployment rate, assuming its validity and meaningfulness, and then trying to explain why household spending (demand) wasn’t following all that.
In terms of household spending, private consumption is somewhat sluggish recently, reflecting bad weather in the April-June quarter. Nevertheless, as the employment and income situation has continued with its steady improvement and consumer sentiment is on an improving trend, private consumption seems to have remained resilient on the whole.
Consumer “demand” remains “robust” except that it is easily distracted by Japanese weather (obviously not the same storms and snow apparently afflicting the US in the quarter before) and can only charitably be described as “resilient.” As nice as all that may sound, couched carefully as always improving, it doesn’t quite explain the steady and growing chorus expecting and now demanding still more QQE.
Some of that is surely the “unexpected” detour of Japan’s export sector. As in the US, the Bank of Japan is blaming these unspecified “overseas” factors for the deviation in what was supposed to be building export momentum (though, it needs to be pointed out, the Bank of Japan makes no distinction about nominal growth due to the yen, leaving much illusory gains as if they were actual volume advances).
Exports had increased for three quarters in a row since the July-September quarter of 2014, but have recently been more or less flat, due mainly to the effects of the slowdown in emerging economies (Chart 5). They are expected to remain more or less flat for the time being, but after that, they are likely to increase moderately, supported by the correction of the appreciation of the yen to date as emerging economies move out of their deceleration phase.
He says exports were growing, but by any realistic account that was only yen-induced. Last August at Jackson Hole, Kuroda sounded exactly the same, which should be quite alarming given that he clearly never saw the “overseas” problem developing and he still has to project “global growth” as nearly all that is left of QQE now.
Mr. Kuroda said that one reason for his optimism was an expectation that Japan’s exports would finally start to increase in coming months. One of the mysteries of the past year been [sic] the continued weakness in Japan’s exports, despite the sharp drop in the value of the yen, which lowers the price of Japanese goods on global markets.
“The world economy is recovering and increasing its growth,” Mr. Kuroda said, pointing to estimates of faster growth from bodies such as the International Monetary Fund and World Bank. “Given this good prospect of the world economy we expect Japan’s exports gradually to catch up.”
Japan’s trade problem has instead only continued, as “this good prospect of the world economy” is nowhere to be found and leaving exports never quite matching or living up to the yen’s pathway. Exports only gained 0.6% in September while imports collapsed 11.1%; so much for internal “demand.” A good proportion of that decline was due to the 23% drop in imports from Australia, continuing a string of such heavy contraction dating back to March. Against that resource and raw material view, Japan’s imports from China still grew 1.1% in September, despite the yen, as offshoring of production continues to haunt the Japanese economy.
That is a factor that Kuroda, belatedly, acknowledged in his speech but if only to suggest, at least in his mind, that such an impoverishing trend may be coming to an end (without expanding on why and for what reason other than a curious view on the currency). While never suggesting his own QQE as heavily responsible, he at least seems familiar with reality here.
What is worth noting is that, as the excessive appreciation of the yen is corrected, Japanese firms — which had been prioritizing foreign investment — seem to be increasing their domestic investment. This is a big change. On the back of a marked improving trend in corporate profits and the effects of monetary easing, business fixed investment is projected to continue increasing moderately.
It seems as if he is quite alone in that assessment, as the trade data from the past few months suggests the opposite. Not only does internal Japanese “demand” appear far less than robust, there isn’t much to suggest a shift in Japanese offshoring; though I am absolutely sure he could produce any number of “surveys” that indicate as much. All that was left from his speech was to acknowledge the “transitory” nature of Japan’s CPI, which he dutifully recited as a part of that “global growth” expectation.
It isn’t often that a central banker is directly rebuked so firmly and immediately, but that is where we are as they attempt to hold the line on an optimistic future that careens further and further from reach.
Japan’s annual export growth slowed to a crawl in September as shrinking sales to China hurt the volume of shipments, raising fears that weak overseas demand may have pushed the economy into recession.
Ministry of Finance data showed exports rose just 0.6 percent in the year to September, against a 3.4 percent gain expected by economists in a Reuters poll.
That was the slowest growth since August last year, following the prior month’s 3.1 percent gain. The weak yen helped increase the value of exports, but volume fell 3.9 percent, the third straight month recording an annual decline. [emphasis added]
In what can only be a further slap to the optimism about QE of any kind, the slowdown in the current quarter is not limited to Japan’s exports alone, extending into business investment which is why the whispers of renewed recession for Japan have only grown louder and gained more and more confirmation. This idea of QQE, as it is with just QE, amounts to thinking fantasy as reality. Kuroda talks about export growth, but he is at great pains to avoid distinguishing nominal levels. Companies, even export companies, may have more yen in profit and revenue, but are actually doing, building and shipping less for it. That is an economic gain in the fantasy of a fiat world divorced from actual business conduct.
Exports to the United States, a major buyer of Japanese products, rose 10.4 percent in September, led by shipments of cars. In volume terms, however, U.S.-bound exports fell 4.7 percent.
None of this should be a surprise given that yen interference and financialism on the scale of QQE amount to attempts at negative redistribution. Given what the Japanese have been subjected to in the past two and a half years of QQE, it is nearly criminal to suggest they need only more of it. None of it has worked as promised and stated, so what might have changed? Absolutely nothing except the arrangement of qualifiers and excuses that litter the same shared central bank speech delivered over and over of late. Kuroda says “robust”, Yellen proclaims “strong”, and both only confirm they live not of this world’s economy.
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Their laughing like being at a party with unlimited cocaine.
Never knew Kuroda spoke yiddish
FUCK THE GOYIM!
Not of this economy. Neither will be Zero Hedge Coin Zero. http://zhc0.com
15horses1donkey.
IF ZERO HEDGE HAD A FUCKING CURRENCY OF IT'S OWN, IT WOULD BE MINTED IN INCORRUPTABLE NON HYPOTHECATED NON DERIVATIVE NON MARGIN ABLE SILVER OR GOLD.
Jesus, fucking kids these days. You all think technology is a miracle. All it is is electrons that can be made to go poof any fucking minute now.
Crypto currency is just a fancy name for digital fractional reserve banking - without the reserve, or the bank.
If I blew up your phone right now, you would look like a cow at the slaughterhouse just at the moment the bolt gun goes off - " How could you do this to me ? What'll I do now ? "
Improvise. Adapt. Overcome. Triumph over adversity.
And, transform your idea into minting a fucking physical coin out of noble metals.
Is the toilet paper know as Yen still a major currency? A radioactive island with a aging population where the youth would rather have sex with a robot than with each other. A nation with a debt equal to 1 quadrillion of their currency.
By the way isn't the weaker Euro and Yen going to cause headwinds for US multinationals?
The economy is strong for the 30,000-odd people who matter.
Everyone else can eat shit, drink piss and live in a cesspit for all they care.
Japan and China are demographically 5-10 years ahead of the rest of the major western economies. I fully expect them to follow Japans path. If you think things are crazy now, wait a few years.
The more it fails to achieve its goals, which it will continue to do, the more they will do with reckless abandon. It's failed for 20 years, why stop now?
I do think one of the biggest problems is that it is starving the population of spendable income while, at the same time, keeping prices from falling to clearing levels. It is why for the economy it will never work. It will just keep asset prices elevated, which is the true goal. Asset prices fall and debt goes bad. Can't let the debt go bad because if you do, you can't keep piling on more debt and the game is over.
We should have finished off the Japs in WWII...The Bolsheviks were right; the little fuckers needed to be wiped off the map then.
Any FED, or political leader are pathological liars. Just like their TP FIAT currency, all lies.
Interesting they don't say "Fukashima related expenses have held back our economy", huh? Oh, maybe because everyone knows they caused it?
How far are we from the point when the majority of the world population understands that predators-DBA-central-banksters and predators-DBA-government caused ALL major problems that exist today?
Nah, much too optimistic to imagine significant numbers of human beings would wake up and notice reality... even just a tiny bit.
As I recall it the Japanese maladie goes much further than Fukushima. Long before they reported on Japan building roads etc to nowhere, just to keep the money rotating.
From where I sit there are 2 aspects that have squashed the Japanese dream run of the 1980s.
1 - industrialisation in China. Due to their large domestic market they can reduce unit prices, come out cheaper for the consumer, and simply choked Japanese businesses.
2 - Abolition of lifelong tenure for jobs. They went for the very extreme end i.e. total job insecurity, so people do not spend any more than they absolutely have to.
It says
In terms of household spending, private consumption is somewhat sluggish recently, reflecting bad weather in the April-June quarter.
Nah - the weather ! private consumption is down because people do not know whether they still have a job next week, everywhere where job insecurity was promoted economies limp.
Is kuroda on the recieving end of a tea bag in that photo?
Mr yellen's perhaps?
Japan's future is both cloudy and complicated by the combination of its massive still growing national debt, an aging population, and their heavy reliance on exports. A recent article in Reuters outlined how Japan is painting itself into a corner when it pointed out the latest fiscal strategy draft being issued by Premier Shinzo Abe lacks the mandatory spending cap. It should be noted the draft is also based on some rather optimistic economic estimates of future events.
This is in many ways about "confidence", the moment it is lost the consequences will be huge. With the government financing almost 40 percent of its annual budget through debt it becomes easy to draw comparisons between Greece and Japan. The obvious difference being Japan is not at the mercy of others and is able to print currency at will.
The bottom-line is the BOJ is in the hot seat and any effort to taper its purchases could cause chaos. Unless the government restores fiscal discipline bond prices will plunge and yields soar on any attempt by the BOJ to cut its bond buying. If it doesn't, fears that the country will monetize its debt will drive funds out of Japan and send the yen into free-fall.
http://brucewilds.blogspot.com/2015/07/japan-and-its-shrinking-number-of.html