While we have heard all the usual excuses that "Japan had no other choices" and that Abe simply had to slay the "deflation ogre" (it is still unclear why deflation is bad for the common man, if quite clear why it is disastrous for massively insolvent and overlevered banks) the simple truth is that it was clear from the very beginning that Abenomics would be an abysmal failure. Ironically, in recent months the cheerleaders of Japan's last ditch effort to delay the inevitable have gotten a second wind: "look at all the inflation" they say, and point to it as evidence that Abenomics is indeed working. There is a problem - it is inflation of all the wrong "non-core" items.
That inflation, it was also clear from the beginning, would surge. Read our take on just this from September [8]:
... even the most absurdly clueless economist is silent this morning in their praise of Abenomics, which supposedly has succeeded in its one goal - bringing sexy inflation back. Why? Perhaps the reason is that whereas Keynesian inflation in which prices and wages are broadly if modestly rising as a result of a properly functioning monetary system, is indeed just what the Doctor of modern economics ordered, soaring input costs driven by FX differentials and current account flows, "offset" by plunging wages is precisely the opposite of what Abenomics was supposed to be. Which is exactly what is going on in Japan.
[9]
In other words, all that Abenomics' cratering of the Yen has succeeded in doing is causing gas and energy prices, and to a lesser extent food, to surge, just as we warned would happen in February [10]. And of course, to make a few US-based hedge funds investing in the Nikkei that much richer.
In other words, all Japan managed to do is import the bad "non-core" inflation, which has sent food and energy prices through the rood (confused why the rest of the world is suffering from an episode of acute deflation? look no further than deflation-exporting Japan) and made "non-core" purchases like food and gas increasingly more unaffordable to the ordinary Japanese consumer.
Today it just went from bad to worse, because as Nikkei reports, gasoline prices at the pump surged to a 5-year high in Japan this week, due to tax increases. The Oil Information Center says the average retail price was 164.1 yen, or about 1.6 dollars, per liter, as of April 1st. That's an increase of about 4.9 cents from the previous week.
[11]
More from Nikkei [12]:
The average price rose for the 4th straight week, and hit the highest since October 2008.
Japan raised the consumption tax rate from 5 to 8 percent on April 1st. The country also increased the anti-global warming tax on fossil fuel by 0.2 cents per liter.
Officials at the center say gasoline sales will be weak for a while after a rush in demand before the tax hikes. They say prices will level off or rise slightly next week as the weak yen is pushing up costs of imported crude oil.
Actually gasoline sales, and all other sales will be weak for a long, long time. Why? The one reason all the above-mentioned cheerleaders of Abenomics fall strangely silent when it comes to the one all important, beneficial inflation that by now should have arrived. That of wages.
Unfortunately for Japan and those same clueless economist cheerleaders, as we reported on Tuesday, in February Japan announced that not only has there not been any base wage inflation, but wages have now declined for a Lehman-crisis like 21 consecutive months [13].
[14]
So what next?
Well, more pain until the locals get so sick of Abenomics, that Abe meets yet another prematue, Diarrhea-coated exit. Because while the Japanese stock market, which is still down materially YTD and hence instead of providing a "wealth effect" is merely adding to the "misery effect", may provide some temporary solace to those - about 20% or so - who are invested, everyone else is looking at even faster wealth destruction as the value of the Yen continues to slide, as "non-core" products like food and energy continues to rise to multi-year highs, and as wages continue to slide.
This is what we said last time [8]to summarize the dead end Japan is about to crash into head first:
So let's see here: a consumption crippling sales tax increase, soaring input prices which are cratering corporate profit margins just as Abe is really begging firms to hike wages, sliding confidence (which in Japan usually is a leading indicator to government change) as consumers can no longer even afford gasoline, and oh, we almost forget, core deflation. But, hey, look over there, just like in Caracas, the Nikkei is exploding.
All the same is true now. Only this time it's even worse.