Bloomberg: Abenomics has chance to reshape Japan

[gzbkel]

As the BOJ's dominance distorts bond market functions and dries up liquidity, the central bank could have a hard time tapering its buying binge when it eventually chooses to exit its "quantitative and qualitative easing" program.

So far, the BOJ's money printing has kept the cost for financing the government's massive public debt very low. A spike in that cost could stoke market fears Japan may be losing control of its finances, potentially triggering a damaging bond sell-off, some analysts say.

The statements above are quite contradictory.

Lose control??
They print their money.
They buy their bonds.
How to lose control?

As long as they continue to print and buy own bonds, they are in control. But what if they stop?
What are the implications if a central bank continuously expand the balance sheet indefinitely via QE?

(Dummy when it comes to monetary policy. Hope to hear opinions from more informed buddies)

[specuvestor]

Simplistically speaking, Government controls the longer end of the bond market. Central banks control the shorter end. But both are just separate, independent part of the same organisation.

Central Bank buying bonds is simply swapping long term bond into short term debt ie fiat money/ currency. Flooding the market with currency will have inflationary and FX impact. QE is actually to balance out a deflationary cycle. We may think QE failed when inflation is next to zero but we forget what if there is no QE.

But QE cannot be the long term solution without structural reform, which leverage is usually the culprit.

[BlueKelah]

Yeah but any talk of reform is political suicide nowadays, until a revolution happens, govs will just continue on the qe and negative rates.

Banks dont really care, they just make money and expect gov bailouts.

Sent from my MotoG3 using Tapatalk

[gzbkel]

Simplistically speaking, Government controls the longer end of the bond market. Central banks control the shorter end. But both are just separate, independent part of the same organisation.

Central Bank buying bonds is simply swapping long term bond into short term debt ie fiat money/ currency. Flooding the market with currency will have inflationary and FX impact. QE is actually to balance out a deflationary cycle. We may think QE failed when inflation is next to zero but we forget what if there is no QE.

But QE cannot be the long term solution without structural reform, which leverage is usually the culprit.

Hi specuvestor, thanks for sharing your thoughts!
I didn't get that part about swapping long term bond into short term debt. Why is fiat money equivalent to short term debt? Isn't short term debt treasury bills?

In Japan's case, the currency is strong because it is perceived as a safe haven, while they also have deflation.
So it makes it safe, or even "good" to do QE, since Japan will benefit from more inflation and a lower currency. But I wonder how long will this situation persist.

[specuvestor]

Fiat money is just government IOUs ever since the fall of Bretton Wood. You can imagine them as widely available and tradeable T-bills equivalent. T-bills are not widely tradeable

Japan is complicated as usual cause they tend to be quite extreme. Just look at their game shows On one hand their currency has been strong due to sterilisation and deflation. On the other hand they are trying to weaken the Yen for exports. With US doing QE, now Japan can do QE without being called a currency manipulator by the US

Japan unlike Singapore does not import loads of goods for domestic consumption so it is doubtful lower currency will have inflationary impact. It is more for export and GDP purpose. It is quite hard to predict the Yen movement... it is considered safe haven only because it is a reserved currency but as trade in Yen and Japanese population dwindle next 50 years, it is hard to imagine this status will continue. QE is technically negative for the currency unless the market perceive that growth will be restarted. Just need to see the diff between USD and EUR QE.

[CityFarmer]

Fiat money is just government IOUs ever since the fall of Bretton Wood. You can imagine them as widely available and tradeable T-bills equivalent. T-bills are not widely tradeable

Japan is complicated as usual cause they tend to be quite extreme. Just look at their game shows On one hand their currency has been strong due to sterilisation and deflation. On the other hand they are trying to weaken the Yen for exports. With US doing QE, now Japan can do QE without being called a currency manipulator by the US

Japan unlike Singapore does not import loads of goods for domestic consumption so it is doubtful lower currency will have inflationary impact. It is more for export and GDP purpose. It is quite hard to predict the Yen movement... it is considered safe haven only because it is a reserved currency but as trade in Yen and Japanese population dwindle next 50 years, it is hard to imagine this status will continue. QE is technically negative for the currency unless the market perceive that growth will be restarted. Just need to see the diff between USD and EUR QE.

The "key" different between Japan QQE with other QEs, which determines the success rate, is the confidence to spent, by both consumers and corporations, IMO. Japan has the lowest among them, even unions have agreed to depress wages...

[CityFarmer]

Latest update on Japan Abenomics...

Japan FY2016 budget to clear parliament, more fiscal stimulus to follow

TOKYO (March 29): Japan's parliament is set to approve on Tuesday a record 96.72 trillion yen ($1.17 trillion) state budget for fiscal 2016, paving the way for a fully-fledged debate on additional stimulus spending to spur the flagging economy.

Prime Minister Shinzo Abe seeks to front-load spending for the annual budget for the coming fiscal year from April and to adopt a fresh extra budget, while speculation is rife that he may again delay a sales tax increase planned for April 2017.
...
http://www.theedgemarkets.com/sg/article...lus-follow

[gzbkel]

Following article attributes the failure of Abenomics to lack of trust in Japanese government.

TT-843 -- How the Failure of Abenomics Leads to the Record Sales of Safes. E-biz news from Japan.
Terrie Lloyd's picture
Submitted by Terrie Lloyd on March 21, 2016

After a strong start last year, the ruling LDP government seemed
genuinely perplexed when at the end of the year the nation's annual Real
GDP was found to be just 0.5% and for the last quarter a problematic
-0.3%. The government's leadership continue to have their collective heads
buried in the sand by blaming an unusually warm winter and other
external factors for the anemic performance. You kind of feel sorry for
them. After all, they have done everything by the textbook (well, the
Keynesian textbook, anyway), by expanding the nation's money supply
aggressively, and by implementing various stimulus packages.
[...]

http://www.japaninc.com/tt843_how-the-fa...s-of-safes

[BlueKelah]

Japan factory output falls in February at worst pace since 2011

https://sg.finance.yahoo.com/news/japan-...nance.html


Japan's factory output plummeted in February at its sharpest pace since the aftermath of the 2011 earthquake and tsunami disaster, government data showed Wednesday, the latest setback to efforts to rejuvenate the world's third-largest economy.

Prime Minister Shinzo Abe has been trying for more than three years to pull Japan out of years of deflation, stagnant wages and weak consumer spending.
Unorthodox measures including a massive bond-buying programme by the Bank of Japan have brought the yen down from record high levels and made Japan's exports more competitive but that alone has not been enough to deliver consistent economic growth.

Gross domestic product contracted 0.3 percent in the last quarter of 2015, revised data showed earlier this month, marginally better than the first estimate in February but still a disappointment.

The Ministry of Economy, Trade and Industry said that industrial production fell 6.2 percent from the previous month, worse than a Bloomberg forecast of a 5.9 percent drop.

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Made in Japan and Made in China are both showing a sustained downtrend in manufacturing and GDP. 

Even Yellen also scared liao and became dovish last night.

Without reforms, it is quite clear by now that QE by itself is pretty useless.

[CityFarmer]

An interesting combination, a massive QQE, yet the currency value is going up...

Update: Japan's Abe rules out intervention as yen sits at 17-month high
06 Apr 2016 14:14
[TOKYO] Japanese Prime Minister Shinzo Abe has ruled out intervening in currency markets to halt a surge in the yen, despite the unit sitting near a year-and-a-half high against the dollar Wednesday.

Huge volatility on equity markets driven by worries about the slowdown in global growth have sent traders scurrying for the Japanese unit, which is considered a safe bet in times of turmoil.

The currency's turnaround is bad news for the profitability of Japanese exporters and Tokyo's broader attempts kickstart the world's number three economy.

But, in an interview with the Wall Street Journal, Mr Abe ruled out stepping into foreign exchange markets to reverse the yen's rise.
...
AFP

Source: Business Times Breaking News