Japan is angry. Rightfully so, in a perverse way.
What is Japan angry about?
It has not succeeded in destroying its own currency, a seemingly simple task.
Japan Lashes Out
My advice is coming up. First, please consider Japan Lashes Out Against Rise of Yen.
The yen touched new highs on Thursday, defying Tokyo’s effort to weaken the Japanese currency in the latest sign that policymakers in leading economies are running out of tools to kick-start sagging growth and battle the threat of deflation.
Japanese officials issued warnings about “one-sided” moves, a signal of possible intervention that would usually put traders on high alert. Instead, the yen soared to its highest levels since the Bank of Japan fired its second stimulus bazooka in October 2014.
The yen’s momentum comes despite the Herculean efforts undertaken by central banks to spur growth in Asia and Europe. Like the BoJ, the European Central Bank has intervened in the capital markets at unprecedented levels to little effect.
Their task is being made harder by US Federal Reserve chair Janet Yellen, who has signalled a slower pace of interest-rate increases than was indicated in December, triggering a weaker dollar.
Brexit fears are, meanwhile, weighing on the pound, diluting the effect of BoJ and ECB measures on exchange rates with their major trading partners.
Blame the Yen
It’s pretty damn pathetic when you cannot destroy your own currency. But that’s where we are given the competitive currency devaluation madness.
In addition to the Bank of Japan and prime minister Shinzo Abe, corporations are not pleased with recent results.
For example, ZeroHedge reports Asia’s Largest Clothing Retailer Plummets After Slashing Guidance By A Third; Blames Strong Yen.
Strong “One-Sided” Yen
Given claims of “strong” and “one-sided” moves in the Yen, Mish readers no doubt would like to examine that idea in pictures.
Up arrows in the following chart represent weakening of the Yen vs. the dollar, and down arrows strengthening. Captions explain by how much.
Strong “One Sided” Yen Synopsis
- From January 2012 until the tip of the decline in May 2015, the Yen declined 39.43% vs. the US dollar
- Since then, the Yen has gained 13.54%
- Alternatively, using the same starting point of January 2012, the Yen is down a mere 29.95% vs. the US dollar.
- Supposedly, this is one-sided “strength”.
How one-sided can you get going down while complaining about going up?
Through the Looking Glass
“Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else—if you run very fast for a long time, as we’ve been doing.”
“A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
Mish Advice
If you cannot destroy your own currency, don’t blame others with “one-sided” complaints, just try harder.
Down 39.43 is clearly insufficient. Down a mere 29.95% is an outright pathetic performance.
Japan, we know you can do it. Give it all you’ve got.
My advice of the day, at no charge: Try harder. Set a goal of down 80% and “do whatever it takes!”
Mike “Mish” Shedlock
Negative interest rates cause deflation. Either the banks park money outside the banking system or the people park it outside the system. Either way the money supply contracts.
It \’s the other way around. To much money supply and not enough demand drives the cost of borrowing (interest) down
If you want to devalue your currency, they have to devalue against something that cannot be printed. Since all the current shenanigans are just circular tosh. I still do not understand why the SNB, who are having the same problem, just do not print money and buy foreign owned physical Gold and repatriate it.
To me this is a solution to getting Governments and corporations worldwide to admitting their insolvency and bad debts. Everything else is just extend and pretend.
Any reasons why they should not do this?
Backing a currency with gold would cause the currency to rise.
I have my own satirical plan that I will announce soon
No currency could ever be backed by gold as the total of 180,000 metric tonnes of gold in existence is worth less than $7 trillion and almost 70% of that is held in the form of privately owned jewelry widely dispersed around the world and even the total value at today’s market prices represents far less than 1% of global assets. The M2 money supply in the US alone is now around $13 trillion.
Mish: could the Japanese get inflation if they just gave every Japanese citizen a payment of 1 mil yen? Any chance of them pursuing this?
Would a debt jubilee cause inflation? Why is that not being pursued by any country?
It seems like there are a lot of nations that want inflation but aren’t willing to try anything new in order to get it, so they keep doing stuff that has been proven not to work.
There is surprisingly little debt in Japan except govt debt.
Handing out money could conceivably cause hoarding although some would surely get spent
I have my own satirical plan in my head and free cash is part of it – but in a different way
Mish
Central banks NEVER “give” money to anyone. QE in the US by the Federal Reserve as well as in Japan by the BOJ and in Europe by the ECB was a series of ASSET PURCHASES where banks and other financial concerns had NO NET GAINS WHATSOEVER as a result of those versions of QE.
“The yen touched new highs on Thursday, defying Tokyo’s effort to weaken the Japanese currency in the latest sign that policymakers in leading economies are running out of tools”
Yen strength (for now) due to BOJ outta bullets and unwind of carry trade (years in the making).
Look for 100 yen to $US … possibly (much) stronger.
Sorry Kyle Bass and John Mauldin, your calls for 200 yen (or greater) to $US ain’t happening anytime soon.
Japan is the most bankrupt country in the world by a huge margin and its government debt is around 250% of its GDP compared to around 105% in the US and around 100% in the EU. The Japanese Yen as well as the Chinese Renminbi are headed for huge plunges relative to the US dollar and the Euro and Kyle Bass is absolutely correct on both currencies.
Just give them more time and the BOJ will indeed make the yen worthless. It is getting more difficult to ignore that Japan is facing a mountain of debt that can only be addressed by printing more money and debasing their currency. This means paying off their debt with worthless yen where possible and in many cases defaulting on promise.
Japan is stuck with an aging and shrinking population that with each day becomes more expensive for the government to provide for. Simply put, the fundamentals for Japan are lousy. More about this in the article below.
http://brucewilds.blogspot.com/2016/02/japan-is-falling-into-economic-abyss.html
Absolutely correct, Bruce.
At some point a positive feedback loop will start and the Yen will crash. There are many ways to think about this. One is a “crack up boom”. My favorite is that as people start to get worried about the currency they will get out of long term bonds and buy real things. But as people do this the central bank will print more money to buy up the bonds being sold (while there are still some traders there are no long term investors in negative yield bonds except the central bank, with new money). But this buying of real things and more money printing will eventually start to drive up prices. The faster prices go up the faster people rush to sell their bonds and buy real things. But the faster they do this the faster prices will go up. There will be a death spiral or positive feedback loop. It is just a question of when and probably it is not possible to say exactly when, human panic is difficult to predict.
Yep.
The Japanese have accumulated a massive amount of capital over the past 50+ years, much of it invested overseas and in various carry trades.
The Japanese are now in a position where it they are consuming this capital, with carry trades unwinding and assets being brought home (in Yen) to live off.
This process may take quite a while, but when it ends, the Yen is likely to get very weak, very quickly.
To me, Japan is more of a cult than a country. Japanese monetary theory and practice is fantasy based thinking based on Scalia like logic (decide on the conclusion you want, logically cherry pick facts and ideas that support your desired conclusion while ignoring or ridiculing whatever easily destroys your ideology, expect your supporters to defend your logic forcefully, claim you”re defending the true faith).
I’m patiently waiting for Abe and Kuroda to admit failure publicly. It’ll be funny. Too bad for the Japanese but they’re doing nothing to stop them or the ideas they support. Even after 20+ years of failure, they still want to try it a little more. If Japan’s not a cult, than what is it?
Japan is a failure?
What is their unemployment rate?
Their incarceration rate?
Rate of Rape?
Murder rate?
Cost of Police and Court systems
School Drop out Rate?
World ranking in Math, Sciences?
World ranking in IQ?
World ranking in college drop out rates?
Child Health?
Number of Municipalities in or entering bancrupcty?
World ranking in AIDS infections?
Teen pregnancy?
Un-wed Mothers?
Now, compare America.
In the game of life, teen pregnancies is quite the winning strategy. Japan’s strategy, NO pregnancies whatsoever, is most certainly a failure.
About 42 years after being nuked, the Japanese had perfected Life, the Universe and everything. Noone got sick and died anymore, no car, motorcycle, maglev train, camera, electronic anything, nor anything else ever broke. And all of it was reasonably affordable for everyone. And the average age of the Japanese weren’t too far from 42 ….
Then, having perfected everything, they looked at each other and said: “You know what. This perfect thingy is nice and all. But it still kind of sucks. Let’s just go extinct instead.” And now their average age is rapidly approaching 84. Which, as everyone should know, is the wrong answer. By a binary order of magnitude.
Japan is the most insolvent country in the world with its government debt at around 250% of its GDP and its economy substantially failing.
With no inflation and every country trying to debase their currency, it is a zero sum situation. What we should watch is how major banks and governments will write down their debt in years to come. It is only a shell game now. Governments borrow from banks and each other, then said governments loan money to banks or pretend to not include portions of their balance sheets and call them solvent.
Everything, and I mean Everything, makes sense if you are not afraid to LOOK. For most humans, the horror of seeing things different from what they have been told, is just to painful, so don’t look.
Japan is, at this time, one of the most stable, if not the most stable, society on Earth. One people. One language, One culture, One “Philosophy”, One History, etc. These factors make a society stable and stability is the #1 necessity of Free Enterprise Capitalism.
No alert private investor is going to put his/her money into a nation heading for social chaos, like France, England and just about all of Western Europe. Next, comes America with it’ impending demographic Civil War 2.
Whether or not the population of Japan is growing, shrinking, etc. it is the totality of their “cultural” oneness that is protecting them. Odds are “0” that downtown Tokyo, of ANY, Japanese city will go up in flames from demographic riots, of that immigrant Muslims are going to blow up any Airport.
Everybody in Europe is just waiting for the next 100 blown up bodies from the next Muslim bombings somewhere in Europe. Who the hell wants to invest in an area where you don’t even want to walk down the streets? Where tourism is collapsing or where your daughter will be ganged raped just for going out during the evening in 1,000 year old Cologne, Germany, today in civlized 2016? This would have never happened in 1936. Never.
Raped by men who don’t understand “Nein” and she doesn’t know how to say “La”. ( لا )
As for America, what sane investor will put their money in Detroit, Birmingham, Newark, Compton, Baltimore, Los Angeles, Gary, Flint, St. Louis, Ferguson, Philadelphia, of any large American city etc, etc? But, don’t ask why……it is just to painful…..so don’t look…..but the smart investor looks……………………..
That comment was brutally honest and quite logical. It is the elephant in the room. I have never read that explanation for Japan’s “failure” to destroy its currency. It appears to be correct though. I just visited Tokyo and Singapore and I must say that on the ground they look like excellent investment opportunities because of the social stability. Now Singapore is stable for a few other reasons, but that is another story. If only Japan would stop this money printing insanity it would instantly become even more stable and powerful. Time to be long on the Yen……?
I am sure Krugman is telling them exactly that
I think the end game is closer than Japan realizes. Japanese were actually doing OK until Krugman and our Kenesians arrived to “help” them. They had slow, but real, growth since inflation was subdued and the Yen was strong
The result of our help is now becoming apparent: A resource-poor nation heavily dependent on exports frantically increasing it’s export costs…at the behest of our ivory tower academics, none of whom ever actually competed for market share and/or profitability in the real world..
Yen’s surge against US dollar revives deflation jitters
Japan’s currency has gained 12% against the dollar this year, increasing pressure on the Bank of Japan to take action
Fears that Japan’s anti-deflation strategy is unravelling have intensified after a sharp rise in the value of the yen against the dollar prompted a concerted attempt by policymakers in Tokyo to talk down the value of the currency.
Japan’s finance minister, Taro Aso, raised the prospect of intervention on the foreign exchanges to counter what he called the “excessive” rise in the yen, which has gained 12% against the dollar since the start of 2016 to stand at a 16-year-high.
http://www.theguardian.com/business/2016/apr/08/yen-us-dollar-deflation-bank-japan