The Incredible Shrinking Benefits Of Massive Japanese Money Printing
Excerpted from JPMorgan CIO Michael Cembalest 2016 Outlook,
Something is wrong with this picture. In the US and Japan, corporate profits sank during the global financial crisis. In the US, the profit recovery was accompanied by a recovery in household income. In Japan, however, corporate profits and household income moved in opposite directions, as dynamics that helped profits recover did not help consumers.
How can we explain the outcome in Japan? The benefits of a weak Yen are mostly concentrated among large corporations, given translation gains on offshore non-Yen income relative to Yen-denominated costs. For smaller companies and households, a weaker Yen simply resulted in imported inflation. While consumer spending has stabilized after a decline caused by the imposition of a Value Added Tax in 2014, there are few signs of a rebound to pre-VAT levels. Japanese GDP growth has been volatile and averaged 1.5% in 2015; we’re expecting a similar outcome in 2016.
In October 2015, the Bank of Japan did not take further steps which markets were anticipating (e.g., an increase in equity ETF purchases from ¥3tn per year, an increase in REIT purchases from ¥90bn per year or an increase in government bond purchases from ¥80tn per year). Perhaps concerns about the negative domestic impacts from a weaker Yen are affecting BoJ policy.
Our contacts in Japan believe that the BoJ is no longer being pre-emptive, and will wait until November 2016 to act.
The Japanese experiment.
There are few precedents for the kind of experiment Japan is conducting. At the current pace of BoJ purchases, private sector banks might actually run out of JGBs by the end of 2016, at which point the BoJ would have to buy them directly from the non-bank private sector; I think it’s fair to say that no one really knows what would happen then.
One thing is certain: like riding a tiger the BoJ can’t stop now, and has little choice but to continue with debt monetization as Japan’s Federal debt grows higher, and as it veers further and further into the economic unknown.
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Same thing is about to happen to China.
Chinese re-balancing is going to have stagnation as its core - for decades.
As Chinese demographics do the rest ... same as for Japan.
ponders whether investing in wheelbarrows to carry the banknotes from money printing that will replace nucelar fuel
we have had a peaceful and quiet new year here in tokyo. we remain conservative in outlook, manage our expectations, and are not surprised by the weakness that is the common fate of demographically and resource challenged states.
I guess you have a "radiant" future in front of you. Do you still need lighting at night over there ??
I stopped reading from the first sentence...excerpted from jpmorgan...tell ya what tho, want quality? Honda kicks ass. More expensive but its worth it...
go tell that to Maclaren F1
Shrinking benefits? Look at the US middle class and QE. Cause and effect??? It would take a snail not to put the two together
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
Look at the US velocity of money..
https://research.stlouisfed.org/fred2/series/M2V
Central bankers are pushing on a string with a bull dozer
People hunker down and go quiet when they know the markets are FAKE.
Why would decison makers lend at all time rate lows....?
well wal mart did give us a raise so we are making a bit more. thanks ben and janet.
Paul Krugman's analysis of Japan's economy:
http://www.nytimes.com/2015/09/11/opinion/paul-krugman-japans-economy-cr...
It's worth reading and contemplating because Krugman is widely respected by many of the politicians and economists who form policy around the world.
Mr. Krugman believes that the ratio of young/old in modern industrialized (and digitized) economies is a looming problem. I agree. His solution is to import young people from more populous third-world countries. I disagree. The U.S. and Western Europe already have more young people than they can handle - there aren't enough decent jobs to go around as it is. There is no shortage of young people; the digital age has rendered the average Western young person obsolete. It's not like young workers are in short supply and they can lever their scarcity into high wages and better working conditions. Many can't find a decent job to save their ass.
Mr. Krugman also believes that Central Banks and Governments should stimulate their economies by printing money to "buy real stuff" (vs. financial instruments), thus stimulating output and providing incentive for private investors to focus on increasing production capacity. I welcome Laws Of Physics' thoughts on that solution to global economic malaise.
Spot on. A more fundamental way of describing the same coin: Obsolete humans means unwinding of the industrial society. I know it sounds like heresy, but the only solution as I see it is that people will have to go back to the self sufficiency of the family farm. The problem is farm land is unavailable to the masses who gave it up decades ago for the lure of the city.
Also spot on. The "average" human is no longer able to add value in a high-tech manufacturing economy. Go back to your grannys' farm and grow potatoes and commit yourself to bartering as in the old days - or die.
Yes. This myth about demography is still widely touted by the delusional economists and their likes. It is talents that you need (old and young) to work and enhance the technologies and not mass of untalented who you need vast social spending to bring them up the curve (best scenario). They also do not constitute consumer power.Worst case is in not ensuring that you have no welfare seekers masquerading as deserving immigrants.
Their money can't be all bad they just bought a butt load of passanger planes from Airbus or somebody. I got a Confederate $500 dollah bill. The South will rise again.
Sum Ting Wong.