After a difficult 2016 to say the least Governor Kuroda of the Bank of Japan has some reasons to be cheerful. So let us remind ourselves of the view of Ian Dury and the Blockheads about this.
Reasons to be cheerful, part 3
Reasons to be cheerful, part 3
Reasons to be cheerful, part 3
Reasons to be cheerful – 1, 2, 3
If we look for reason one well that is easy as DailyFX have already pointed out.
USD/JPY hits 111.125 its highest since May 31, as reflationary Trump-trade rolls on. Perhaps only Thanksgiving can put a temporary brake on.
As the policy of Abenomics has a lower Yen as perhaps its major weapon and objective its recent fall will be welcome to the Japanese establishment. It was at 103 just before the election of Donald Trump so quite a fast decline although we should not overplay his impact as the Yen had been weakening since the near 100 of late September. Even the poor battered UK Pound £ has seen a bounce versus the Yen from the 125 of middish October to 137 overnight. If we look at the battle of the currency depreciators of the Far East then I note that it now takes just over 16 Yen to buy in Chinese Renminbi or Yuan as opposed to just over 15 in late September. Cue smiles from Tokyo and frowns from Beijing.
This is something which is associated with the weaker currency as we note something which all central bankers love these days. As they are keen to proclaim wealth effects then a higher equity market is close to their heart. There has been quite a push higher to 18,106 in the Nikkei 225 equity index from the below 15,000 of June 24th. It is now in a bull market although of course that is merely another way of saying it has risen under the modern definition of a 20% rise.
Economic growth as measured by GDP was relatively strong in the quarter just passed as Japan Macro Advisers point out.
According to the preliminary estimates by Cabinet Office, the Real GDP grew by 0.5% from the previous quarter (QoQ), or by 2.2% on annualized terms. The pace of the growth was significantly stronger than the prior market expectation.
It was to say the least export led.
The external demand added 0.5% point to the GDP growth on the account of rising exports and a fall in imports.
At this point Governor Kuroda might be considering joining the Japanese version of Strictly Come Dancing as those suggesting “innovation” in monetary policy seem to do these days. However whilst he might be smiling even the recent better silver lining had a cloud. If we stay with Japan Macro Advisers.
A key point from the preliminary estimate is that weak domestic activity continues to cast doubts on a sustainable recovery of the Japanese economy as there has been virtually no growth in private consumption nor private expenditure.
Okay so sadly same as it ever was in this regard and the day after the report Governor Kuroda did not seem that optimistic about more export growth.
Against this background, exports and production are expected to start increasing moderately.
You may wonder about the start but you see he does not think that Japan’s exports have been doing that well.
Exports as a whole have therefore been flat. Against this background, production also has been almost flat.
The past was bright
Back on the 30th of September I pointed out that using a new methodology the Bank of Japan has decided things were much better than they previously thought.
According to an experimental index prepared by the BoJ, Japan’s economy expanded 2.4 per cent in 2014, rather than falling 0.9 per cent as the official data showed.
They use the income version of GDP to get this as we not that the moral hazard meter rises perhaps even to the mythical 11 out of 10 described by Spinal Tap.
Unlimited bond buying
Back on the 21st of September the Bank of Japan introduced “QQE with Yield Curve Control” as described below.
The Bank will purchase Japanese government bonds (JGBs) so that 10-year JGB yields will remain more or less at the current level (around zero percent).
Actually very little happened here as things as I have pointed out carried on pretty much as before although the change of language did obtain a fair bit of comment and claims of a clear change. For those wondering why QE is called QQE or Quantitative and Qualitative (monetary) Easing in Japan the answer is easy as so many versions of QE led to it being discredited.
On Thursday the Wall Street Journal was on the case again.
The Bank of Japan on Thursday offered to buy an unlimited amount of Japanese government bonds at fixed rates for the first time since the introduction of a new policy framework—a sign of its concerns over recent rises in yields.
There is an issue here as I note that the ten-year Japanese Government Bond yield is at 0.03% above zero. It is up 0.08% over the past 30 days according to Bloomberg which gives a different perspective on the media reports of success. Also how do claims of unlimited buying face up to the extraordinary buying which was already happening?
This is yet another market where the Bank of Japan has become the Tokyo Whale. Here is something of an update of how it is progressing on the Tokyo Whale front elsewhere.
It’s the No. 1 shareholder in piano maker Yamaha Corp., Bloomberg estimates show, after its ownership stake via ETFs climbed to about 5.9 percent…..The BOJ is set to become the top holder of about five other Nikkei 225 companies by year-end, after boosting its annual ETF buying target to 6 trillion yen last month. By 2017, the central bank will rank No. 1 in about a quarter of the index’s members.
How do “wealth effects” made by the central bank benefit the consumer?
There is much to consider here. If we consider the use of the phrase “unlimited buying” how did that work out for the foreign exchange purchases of the Swiss National Bank? That too was portrayed as a triumph until the engine blew a gasket. Also whilst the government of Japan offers a ready supply of newly printed Japanese Government Bonds via its fiscal deficit the supply is not unlimited so we have to ask what happens if they run out of bonds to buy? Not so long ago that would have seemed not far off crazy.
There is another irony for 2016 which goes as follows. When the Bank of Japan acted in 2016 things went wrong for it but when it talked but did nothing it saw the Yen fall and Nikkei rise. One in the eye for the central planners!
Another problem for the central planners in that in some ways Japan is not doing too badly. What I mean by that is that any economic growth may be an achievement compared to an ageing population which is also doing this according to The Japan Times.
Japan’s population excluding resident foreign nationals fell last year at the fastest pace yet, down 271,834 from a year earlier to 125,891,742 as of Jan. 1,……Japan’s population peaked in 2009 at 127,076,183 and has since been declining.
So the performance per head is better than the headlines. This of course brings us to something of a crunch because the official medicine for ever fewer people seems to be policies to accommodate an ever larger national debt. Also the current establishment mantra is for lower interest-rates and easier fiscal policy, well that’s Japan……..
However another issue currently on the sidelines is the price of crude oil as Japan via its lack of natural resources is perhaps the biggest gainer from lower oil prices.