Tag Archives: Japan

Bank of Japan Tapers (Quietly), QE Party Over, by Wolf Richter

The world’s major central banks are quietly withdrawing the monetary fuel for the rally in financial assets. That includes Japan’s. From Wolf Richter at wolfstreet.com:

No flashy announcement, to avoid alarming the markets.

After years of blistering asset purchases, the Bank of Japan disclosed today that it held a total of ¥521.6 trillion in assets as of November 30, including Japanese Government Bonds (JGBs), gold, corporate bonds, Japanese REITs, equity ETFs, loans, etc. That is quite a pile, so to speak. It amounts to about 96% of Japan’s GDP.

By this measure, the BOJ’s balance sheet dwarfs the Fed’s balance sheet, which amounts to 23% of US GDP. When it comes to QE, no one can hold a candle to Japan. Its holdings of JGBs alone rose to ¥443.6 trillion. Its balance sheet looks like a typical post-Financial-Crisis central-bank balance sheet on steroids (chart in trillion yen):

There a couple of differences compared to other central banks: One, the BOJ started QE long before anyone even called it “QE,” but in 2013, it really got going, and those giant moves made the prior periods of QE look minuscule. And two, the BOJ actually unwound some of its earlier QE starting in late 2005 but soon gave up on it.

Now something else has been happening: Starting in December 2016 – the month the Fed raised rates and a few months after some Fed governors started to kick around the idea publicly that QE should be unwound – the BOJ began to curtail its asset purchases.

In other words, it began to “taper.” Assets are still increasing but at a much slower rate. During peak QE – the 12-month period ending December 31, 2016 – it added ¥93.4 trillion (about $830 billion) to its balance sheet. Over the 12-month period ending November 30, 2017, it has added “only” ¥50.8 trillion to its balance sheet. Though that’s still a good chunk of money (about $450 billion), that addition is down 46%.

To continue reading: Bank of Japan Tapers (Quietly), QE Party Over

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Japan Just Killed the “Bitcoin Will Be Banned” Meme, by Charles Hugh Smith

Japan is holding itself out as a safe haven for cryptocurrencies. From Charles Hugh Smith at oftwominds.com:

One of the most durable claims of cryptocurrency skeptics is that “governments will ban bitcoin once it threatens their fiat currency or their control.” Ben Bernanke recently gave voice to this claim as if it was received wisdom.

Sorry, crypto-skeptics: Japan just killed the “bitcoin will be banned” meme. Japan has established itself as the safe haven of all legit cryptocurrencies and cryptocurrency exchanges.
Japan is not just the world’s third largest economy; it is a keystone of the global economy in supply chains, ownership of overseas assets, capital flows and technology. Japan’s embrace of cryptocurrencies suggests the Japanese understand that adoption of crypto and blockchain technology offers whatever nation is firstest with the mostest in legal protection of these technologies will have a powerful competitive advantage.
Many crypto skeptics claim the U.S. can browbeat adopters of bitcoin into banning cryptos via various threats such as limiting access to U.S. banking. Memo to skeptics: Japan is too strategically important for the U.S. to browbeat over something as small in scale as cryptos. Furthermore, Japan is long past the point where it will automatically comply with every self-destructive demand of the American Imperial project.
As I have often noted here, the market cap of the entire crypto market–$170 billion– is mere signal noise in the $500+ trillion market of global assets. Even if the crypto market rose 10-fold to $1.7 trillion, it would still be nothing but a tiny blip in the global asset marketplace.
Japan has the regulatory legal and bureaucratic structure to monitor and police crypto exchanges and transactions. This complex structure can be deployed to bog down whatever Japan doesn’t favor in endless red tape, or it can accommodate whatever Japan favors. Clearly, Japan favors the adoption of cryptocurrencies and blockchain technologies.
The legalization of cryptocurrencies is now a done deal. Any nation foolish and self-destructive enough to attempt to outlaw cryptos will simply hasten the flow of capital to Japan and other safe-haven early adopters.
Clearly, the Japanese recognize the adoption of cryptocurrencies and blockchain technologies as a competitive advantage, and they’re right.

The True Danger of the North Korea Crisis: It Could Cost America Its Allies, by Robert Kelly

Would the US wage a war that might kill millions of South Koreans or Japanese without consulting South Korea or Japan? It would be a colossal mistake, but the US government has made a lot of colossal foreign policy mistakes lately. From Robert Perry at strategic-culture.org:

If Washington takes action without consulting its allies, the alliances themselves could fray

Tough North Korea rhetoric from the U.S. administration continues. Major South Korean media increasingly talk as if U.S. air strikes are likely, and theexpert community seems increasingly resigned to them as well. Despite constant criticism of his incendiary language, President Donald Trump continues to suggest that major action against North Korea is imminent—most recently by suggesting that we are now in a period of ‘calm before the storm.’

I have argued in these pages that such strikes would be an enormous risk. We do not know what the North’s redlines for retaliation against such a strike are. We do not know if the strikes would so unnerve the North’s elites that war was next, that they would respond with enormous force, possibly including nuclear weapons. An expert study of this scenario suggests appalling casualty numbers. We also do not know what China’s thresholds are for intervention. China is treaty-bound to help North Korea if it is attacked. It may not, but if a U.S. air strike against North Korea spirals into a major conflict, then the likelihood of Chinese intervention rises.

It is also worth noting that even if the Chinese and North Koreans do not respond to air strikes, North Korea will almost certainly deploy human shields as soon as the bombs start to fall. And the North has so many targets that the United States would like to hit, that any ‘air strike’ would look a lot more like a major air campaign and not a quick ‘surgical strike,’ as in Syria earlier this year. An air campaign against sites with human shields means a high civilian death toll. The North Koreans will not make this easy for us at all.

White House officials, most importantly Secretary of Defense James Mattis, continue to suggest that diplomacy is the preferred outcome. And there are options to continue to buy us time against the North Korean nuclear and missile programs: missile defense, sanctions, continuing to cajole China to push North Korea harder and so on. Nevertheless, the pressure to something dramatic regarding North Korea is rising. If war is inevitable — it is not, but for the sake of the argument—it is better to fight now, before they have more weapons, and before those weapons can more evidently strike the continental United States. Even Kim Young-sam, South Korea’s president at the time of the 1994 nuclear crisis, has retrospectively regretted his decision not to strike then.

To continue reading: The True Danger of the North Korea Crisis: It Could Cost America Its Allies

War Is Not an Option for Korea, by Christine Ahn

Even best case scenarios for war on the Korean Peninsula are horrific. From Christine Ahn at antiwar.com:

“Let me be very clear: The policy of strategic patience has ended,” U.S. Secretary of State Rex Tillerson told reporters at a news conference in Seoul, South Korea. “All options are on the table,” Tillerson continued, including “an appropriate response” to any North Korean threat.

The United States and North Korea are like two “accelerating trains coming toward each other,” Chinese Foreign Minister Wang Yi warned last week. North Korea test-fired four ballistic missiles off the coast of Japan as thousands of South Korean, Japanese, and US troops, backed by warships and warplanes, are currently engaging in massive military exercises, including the deployment of the Navy SEALS that killed Osama Bin Laden.

With no communication other than military posturing, Pyongyang is left to interpret Washington’s maneuvers as preparation for a preemptive strike. Given the political vacuum in South Korea following President Park Geun-hye’s impeachment, all tracks are heading towards one destination: war.

At a Council of Foreign Relations discussion on March 13, Mary Beth Long, a former assistant secretary of defense, advocated for “aggressive movement” given the failure of the Obama administration’s strategic patience, which depended heavily on sanctions to further isolate and foment the collapse of the Kim Jong Un regime.

Yet as hawks call upon President Trump to deal with North Korea’s nuclear and missile programs through the use of force, they’re undermining the very reason the US military has allegedly been stationed on the Korean peninsula for seven decades: to protect the South Korean people.

Although the fantasy of surgical strikes to topple brutal dictators has long intoxicated American military officials, they’ve been restrained by the sobering reality of such reckless action. In the 1990s, when President Bill Clinton considered a first strike on North Korea’s Yongbyon nuclear reactor, the Pentagon concluded that even limited action would claim a million lives in the first 24 hours – and this was well before Pyongyang possessed nuclear weapons.

To continue reading: War Is Not an Option for Korea

Markets Smell a Rat as Central Banks Dither, by Wolf Richter

There are a lot of good reasons not to allocate much money to bonds as an asset class right now. For one, as Wolf Richter points out, central banks are probably not going to be as strong a bid for them as they have been. From Richter at wolfstreet.com:

Markets are suspecting that central banks are in the process of exiting this fabulous multi-year party quietly, and that on the way out they won’t refill the booze and dope, leaving the besotted revelers to their own devices. That thought isn’t sitting very well with these revelers.

In markets where central banks have pushed government bond prices into the stratosphere and yields, even 10-year yields, below zero, there has been a sea change.

The 10-year yield of the Japanese Government Bond (JGB) jumped 2.5 basis points to 0.115% on Thursday, the highest since January 2016, after an auction for ¥2.4 trillion of 10-year JGBs flopped, as investors were losing interest in this paper at this yield, and as the Bank of Japan, rather than gobbling up every JGB in sight to help the auction along, sat on its hands and let it happen.

And on Friday morning, the 10-year yield jumped another 3 basis points to 0.145%!

In September last year, the BOJ started the now apparently troubled experiment of trying to control not just short-term interest rates but also the entire yield curve. It targeted a 10-year yield of about 0% (it was negative at the time). Analysts believed that this would mean a range between -0.1% and +0.1%, and that if the yield rose to +0.1%, the BOJ would throw its weight around and buy.

But the fact that the BOJ allowed the yield to go above that imaginary line signaled to the markets that it no longer has the intention of capping the yield at +0.1%, that in fact the BOJ has stepped back.

To continue reading; Markets Smell a Rat as Central Banks Dither

 

Don’t Bet on Deflation Lasting Forever… by Bill Bonner

By now the emperor is naked and should have been arrested for indecent exposure: the world’s central banks’ have utterly failed to spark anything resembling a normal business-cycle upswing. From Bill Bonner at bonnerandpartners.com:

OUZILLY, France – Imagine the poor economist without a sense of humor.

How he must suffer!

This week was to be dominated by central banks. Two big ones – the Bank of Japan (BoJ) and the Fed – were to make important policy announcements.

The speculators placed their bets, front-running the news, and sat on the edge of their chairs.

More Mumbo-Jumbo

This morning, the BoJ came out with more mumbo-jumbo.

“Yield curve control,” it promised.

The central bank says it will target a 0% yield on 10-year Japanese government bonds.

It added that it would continue buying the nation’s stocks (by way of exchange-traded funds) and charging a negative interest rate of 0.1% on the accounts banks keep with it.

Japan’s stock market crashed in 1989. Since then, the no-luck Japanese have had sluggish growth, recession, and on-again/off-again deflation.

For more than a quarter-century, the gears of Japan, Inc. have turned slowly. And not for lack of trying.

The government spent hundreds of trillions of yen on “infrastructure” projects in an attempt to “jump start” the economy with fiscal stimulus.

At one point, they were pouring more concrete – on roads, bridges, dams, and other public works – than the entire U.S.

Critics charged that so much cement was used – channeling rivers in the countryside and building ugly bridges to nowhere – that it amounted to the largest vandalization program in history.

The Japanese feds tried monetary policy, too.

ZIRP (zero-interest-rate policy) began in Tokyo. They invented QE (quantitative easing) too; it was supposed to get more “liquidity” into the system and boost stock and bond returns.

And yet, nothing seemed to work.

From Tokyo to Harare

But rather than admit its manipulations have done no good – rather than raise a white flag… back off… and let the market sort itself out – Japanese authorities march on with more claptrap announcements, more pigheaded interventions, and more of the nation’s real wealth squandered on dumbbell projects.

Like soldiers of the Imperial Japanese Army abandoned on a remote atoll in 1945, they continue to fight a lost war.

The Japanese government already has the highest debt load in the world, at 230% of GDP.

Now that the older Japanese, in retirement, are selling their Japanese government bonds rather than buying them, the central bank funds the entire government deficit.

And the BoJ buys so many stocks and bonds, hustlers are said to be creating new investments just so the naïve geniuses can buy them.

Today’s announcement tells us that the central bank will buy more government debt, adding to its pile – already about one-third of all outstanding Japanese government debt.

This is what Zimbabwe and Argentina did. It is a classic way to ruin an economy, by “monetizing” debt.

It amounts to paying government expenses with newly invented money.

Eventually, the extra money leads to consumer price inflation.

To continue reading: Don’t Bet on Deflation Lasting Forever…

Pimco’s Baz Says Japan In a Bind as Total Debt Tops 600% of GDP, by Narayanan Somasundaram

How does a country pay off a debt load that’s 600% of its GDP? It probably doesn’t, not all of it, anyway. From Narayanan Somasundaram at bloomberg.com:

Japan is suffering from the excesses of the past,’ Baz says
Country is G-7 member that’s closest to ‘fiscal dominance’

There’s “very little” that Japan can do about its mounting debt pile, which presents a potential risk to growth, according to Pacific Investment Management Co.’s Jamil Baz.

With a government debt load that’s 2 1/2 times the size of annual gross domestic product and a total national borrowing burden that’s six times as large, “Japan is suffering from the excesses of the past” and the country “is in a bind right now,’’ the fund manager’s head of client analytics said in an interview in Sydney last week.

Japan’s economy is still struggling to gain traction even after policy makers hit it with repeated doses of budgetary stimulus and unprecedented monetary easing to drag the country out of its deflationary funk. The Bank of Japan’s adoption of negative interest rates has pushed down debt financing costs for now, but repeated delays to a planned sales tax increase, a new 28 trillion yen ($272 billion) fiscal boost from Prime Minister Shinzo Abe and the pressures of an aging population mean the borrowing pile is likely to keep on growing.

“In general, when you have these extremely high debt-to-GDP ratios, you have the choice between two things: you either default — explicitly or via high inflation — or you increase your savings to repay,” said Baz, who previously worked at Man GLG Partners and rejoined Pimco in February. “In both cases, there is obviously a substantial left tail risk to future growth.”

Japan is the Group of Seven nation that’s “closest to a situation of fiscal dominance,” Baz said, referring to a situation in which the country’s budgetary needs overwhelm more traditional objectives of monetary policy.

Baz, who has also taught at the University of Oxford, published a paper last month on seven potential outlier risks to the global economy. In it, he discussed the issue of Japan’s solvency and whether its problems might ultimately destabilize the nation and the global monetary system. He painted a tail-risk scenario in which there could be a backlash against negative yields on Japanese government bonds resulting in capital flight and a “melt-up” in the yen. That in turn could lead to either “fiscal dominance/hyperinflation” or a default by the government, he wrote.

While the probability of these outlier scenarios coming to pass in the next year is less than one-in-five in each case, the risks do increase over a longer horizon of 5-to-10 years, Baz said.

To continue reading: Pimco’s Baz Says Japan In a Bind as Total Debt Tops 600% of GDP