Lovin’ Deflation

Once again the spotlight is on the Yen. Please consider Japan Learned to Love Deflation in Wage Malaise Facing BOJ

A decade and a half after Japan slumped into deflation, the central bank is set to signal its strongest effort yet to reverse the trend. The biggest challenge may be that the nation has come to rely on falling prices.

More than 80 percent of respondents in a Bank of Japan survey released this month who noticed rising prices last year said it was bad. More than a third of those who said prices fell were happy about it. Even so, the BOJ next week will adopt the government’s desired 2 percent inflation target, according to 21 of 23 economists surveyed by Bloomberg News.

Japan last had 2 percent annual inflation in 1997, when Toyota Motor Corp. unveiled the Prius hybrid and the yen sank as as low as 130 per dollar. Prices have fallen in 10 of 15 years since, according to data compiled by Bloomberg.

While deflation helps savers, younger generations are hit by stagnant wages and diminished incentives for borrowing.

Increased Debt Not Solution to Global Problems

It’s a world gone mad when central banks act as if increased debt is the answer to every problem. Japan has had increased national debt for over two decades and they certainly are not better off because of it.

80% in the survey are against higher prices. Who doesn’t like a bargain?

The problem is not falling wage. The problem is falling wages when one is loaded up in debt. The 80% are correct, the bank of Japan and the Japanese government are wrong.

Longest Stretch of Weekly Losses Since 1989; Shorts Decrease Bets

Bloomberg reports Yen Slides to Lowest Since 2010 Amid Bets on BOJ; Euro Advances

The yen weakened beyond 90 to the dollar for the first time in 31 months amid speculation the currency will slide further as the Bank of Japan and the government work aggressively to spur economic growth.

The Japanese currency continued its longest stretch of weekly losses since 1989 amid bets the BOJ will decide to conduct open-ended asset buying to stoke inflation. The central bank meets Jan. 21-22.

“The open-ended thing is a little bit of a new twist to the policy easing we’re expecting from Japan, and it’s started to gain traction,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said in a telephone interview. “That’s what I’m attributing the latest leg lower in the yen to. The market is starting to fine-tune its expectations as to what we’ll see from policy makers over there.”

Currency Bets

Futures traders trimmed for a fifth straight week their bets that the yen will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain — so-called net shorts — was 65,727 on Jan. 15, versus net shorts of 74,096 a week earlier.

Speculators reversed their euro bets for a third week, wagering the shared currency will rise against the U.S. dollar. Net longs totaled 7,315 on Jan. 15, versus net shorts of 8,035 a week earlier and net longs of 5,126 the week before that.

Complacency in Face of Falling Values

It is certainly interesting to note that shorts have decreased bets on the falling Yen for a fifth week.

Frequently (and wrongly) traders increase bets and leverage when trades are going their direction.

If anti-yen sentiment is unwinding in the face of this continued drop, that can easily be a sign the Yen is still not ready for a bounce.

Mike “Mish” Shedlock