Friday, November 30, 2012

Japan fights deflation

This was like predicting the dawn.  The BOJ probably had a "serious" meeting with Abe.  And he says he will behave if elected and not make public pronouncements on monetary policy.  But it is clear what he wants.  Of course, this is exactly what the Central Bank's defenders do NOT want.  The reason is obvious—Abe's plan has a 100% chance of success and its good example would humiliate the bankster defenders for a generation or two.

Frontrunner In Japanese Election Walking Back Comments On Quantitative Easing

Lucas Kawa | Nov. 30, 2012

Shinzo Abe, leader of Japan’s Liberal Democratic Party and candidate for Prime Minister in the upcoming December election, has made headlines for his call that the BoJ should pursue unlimited monetary easing until inflation is at 2 percent.

This was widely seen as a potential threat to the BoJ’s autonomy – and was interpreted positively by the markets. Mure Dickie of the Financial Times reports:

Mr Abe’s comments helped push the yen to a six-month low of Y80.75 to the dollar on Thursday, a slide that boosted exporters’ hopes and helped lift the Nikkei 225 index 1.9 per cent.

Just two weeks later, Abe has backed away from his original position. During a debate, he claimed, "If I become prime minister, I will not comment on specific monetary policy measures, which should be decided by the Bank of Japan. I am commenting on specific measures because I am in opposition,"

Perhaps Abe's comments were intended to moderate his position in front of the Japanese electorate.

But Abe has run on a platform that's very heavy on monetary policy - and spurred Morgan Stanley to title its FX outlook: "2013: The Year Of JPY Weakness." If Abe isn’t as committed to monetary easing as he has previously indicated, that view might be called into question.

Abe's party currently leads by 8 points in an opinion poll conducted by the Nikkei daily. more
And here we have an excerpt from Mike Whitney's weekend article explaining why Abe's plan is so good.  Whitney's a guy who has been warning about inflation for most of his life so this is real progress IMHO.
NOV 30, 2012
The Problem is Deflation with a Capital "D".

Monetizing Japan

by MIKE WHITNEY

“If possible, I’d like to see the Bank of Japan purchase all of the construction bonds that we need to issue to cover the cost.” Shinzo Abe, President of Japan’s Liberal Democratic Party (LDP)

Japan’s next prime minister has a plan for ending deflation, increasing exports and boosting growth. Unfortunately, entrenched elites in big business and at the Central Bank (Bank of Japan) want to sabotage Shinzo Abe’s strategy in order to preserve the existing system and perpetuate the upward distribution of wealth.

Here’s what’s going on: Shinzo Abe is the head of Japan’s main opposition Liberal Democratic Party. He is the hands-on favorite to become Japan’s next prime minister sometime in mid-December. Abe has called for a number of policy changes that could turn the Japanese economy around and end the country’s 15-year fight with deflation. This has rattled the cages of the bankers and plutocrats who benefit from the present dysfunctional, oligarchical system. This group would rather see policy stay the same, that is, they’d rather see the BOJ continue its ineffective bond buying program that’s pushed the Japanese economy to the brink of recession for the third time in 5 years.

Abe and his political allies want to try a different approach, a Keynesian approach where the BOJ underwrites the purchase of infrastructure bonds to lower unemployment, weaken the yen, increase economic activity, boost GDP, end deflation and strengthen exports. Abe also wants an 3 percent “inflation target”, in other words, he intends to keep printing money and buying construction (and probably corporate) bonds until inflation takes root, expectations change, and the the threat of deflation is passed. Here’s the story from Reuters:
“Japan’s main opposition leader Shinzo Abe said on Wednesday that the Bank of Japan should continue monetary easing until it achieved 3 percent inflation, signalling the central bank could come under more political pressure after the next general election…

“The Bank of Japan basically needs to continue unlimited easing till 3 percent inflation is achieved,” Abe told a gathering of business executives and academics, stressing that beating deflation and countering the yen’s strength were Japan’s most urgent economic policy issues.” (Reuters)
He’s right, of course, but he’s meeting stiff resistance all the same. And the media has been blasting him as well, assuming the same cynical tone as their corporate paymasters. Here’s a jab at Abe’s recommendations from Forex hotshot Adam Button:
“LDP leader Shinzo Abe, who is the favorite to win the Dec 16 election, is campaigning on a ¥200 trillion ($2.5 trillion) infrastructure plan.

How might a highly indebted country pay for such a lavish plan?

‘If possible, I’d like to see the Bank of Japan purchase all of the construction bonds that we need to issue to cover the cost,’ Abe said in a speech.” (“Abe campaigning on direct monetary financing”, Forexlive)
Pretty witty, eh? Indeed, monetary stimulus is derided as “magical” when it serves the public’s interest and puts people back to work, boosts growth and revs up the economy, but when it’s used to exchange trillions in garbage mortgage-backed securities (that no one in their right-mind would ever buy) and stuff the banks full of unused reserves, then it’s “sheer brilliance.” Isn’t that the mantra we’ve heard for the last 5 years, that Bernanke’s “unconventional monetary policies” have strengthened the non existent recovery by boosting bank profitability and bonuses? How much of that public relations narrative is true and how much is pure bunkum?

And, yes, Abe is suggesting that the BOJ “create money out of thin air.” So what? Does anyone seriously believe that Japan’s 15-year deflationary nightmare will end overnight and the country will slip into Wiemar-era hyperinflation?

Don’t make me laugh. The problem in Japan is Deflation with a capital “D”. Just take a look at this from Wednesday Reuters:
“Latest data showed Japan’s core consumer prices fell for the fifth straight month in September, factory output suffered its biggest fall since last year’s earthquake while the government’s index of leading indicators fell to a level suggesting the start of a recession.” (LDP leader Abe: BOJ must ease until inflation hits 3 percent, Reuters)
Did I hear someone say “Deflation”?
And then there’s this tidbit on wages from MNI Market News:

“The total average monthly cash earnings per regular employee in Japan fell 0.5% from a year earlier in September, revised down from being unchanged in the preliminary reading, hit by the global economic slowdown, data from the Ministry of Health, Labour and Welfare released Friday showed…

Both base wages and one-off pay (including bonuses) were revised down, offsetting an upward revision to overtime pay.

Factory operations have been reduced by slumping exports and slower domestic demand. Automobile output has also been hit by the Sino-Japanese territorial dispute over small islands in the East China Sea.

Average “base wages” — the key indicator for a recovery in employee earnings — fell 0.4% on year (revised from being were flat) in September, marking the fourth straight y/y drop after -0.5% in August.” (“Japan Sep Average Wages Revised Down To -0.5% Y/Y Vs Flat”, MNI News)
Prices are falling, wages are flatlining, and the economy is slipping back into recession. Get the picture? Japan’s economy is in the toilet because the people who are steering the ship of state are morons. more

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