# Is Japan the Black Swan?



## Uncle Festivus (4 June 2013)

For all the problems with the rest of the world, will Japan be the Black Swan event that tips the world into recession again?

John Mauldins' Thoughts From The Frontline article

http://www.mauldineconomics.com/images/uploads/pdf/20130601_TFTF.pdf

Getting close to a 20% correction in the Nikkei and interest rates are rising.....Abenomics out of control.

It costs the Japanese government 24% of its revenues just to pay the interest on its debt at current rates. According to my friend Grant Williams (author of Things That Make You Go Hmmm...), if rates rise to just 2.2%, then it will take 80% of revenues to pay the interest.


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## RamonR (4 June 2013)

Thanks for the link. Have subscribed as looks like good newsletter


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## Knobby22 (4 June 2013)

I can't see Japan being the black swan. First we are aware of it, secondly they have had industrial problems due to power shortages which they are getting in control of now. I am confident that over the next two years, things will improve for Japan.

We are in a precarious situation where a black swan event could tip us over, but by definition, we don't know what or where it will come from.


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## Uncle Festivus (4 June 2013)

Knobby22 said:


> I can't see Japan being the black swan. First we are aware of it, secondly they have had industrial problems due to power shortages which they are getting in control of now. I am confident that over the next two years, things will improve for Japan.
> 
> We are in a precarious situation where a black swan event could tip us over, but by definition, we don't know what or where it will come from.




We are aware that they have 'problems' but the Black Swan event is categorised as

"unexpected events of large magnitude and consequence" & "extreme outliers"

The mainstream do not envisage Japan to declare bankruptcy but when it does will it be unexpected? Just wondering if this is the BSE that will finally end the central bankers QE experiment as each is forced to QE more?


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## Trembling Hand (4 June 2013)

Uncle Festivus said:


> We are aware that they have 'problems' but the Black Swan event is categorised as
> 
> "unexpected events of large magnitude and consequence" & "extreme outliers"
> 
> The mainstream do not envisage Japan to declare bankruptcy but when it does will it be unexpected? Just wondering if this is the BSE that will finally end the central bankers QE experiment as each is forced to QE more?




Why would they go broke? They owe the money to domestic funds in Yen?


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## McLovin (4 June 2013)

Interest rates go up, taxes go up. If they want to make the debt disappear then a shiny new death tax would help fix that; "But all my deceased relative's wealth was invested in JGBs?" "That's OK you can pay your death duties with them".


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## Knobby22 (4 June 2013)

I agree with McLovin.

Also the currency war argument shows cultural bias. The US is subjecting Japan to currency printing forcing up the Yen. Japan reduces it (by printing) and suddenly its a currency war? 
He also argues at cross purposes saying deflation is bad (which it isn't to the ordinary person) and the people in Japan won't stoke it yet suddenly we will get runaway inflation.
If interest rates are forced to go up a bit as he is saying, its not a disaster, its just fact. And that would help the retired citizens to spend more as they would get more cash.

He argues exports are down and so the country is stuffed but lowering the Yen will raise exports and combined with getting the power stations back on line (the tsunami has caused the short term downturn) the economy can be expected to improve.

Nope can't see it.


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## skc (4 June 2013)

Knobby22 said:


> He also argues at cross purposes saying deflation is bad (which it isn't to the ordinary person).




When the economy is in deflation mode, businesses stop making investments and reduce their activities. As the prices they get would continue to decline. This means massive job losses which will lead to a downward spiral.

The ordinary person may enjoy cheaper goods and services, he/she would have no job and no income to pay for them.


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## Trembling Hand (4 June 2013)

The problem I see is that they have it ar$e about. It seems like this is their logic,

Economic growth comes with inflation.

Therefore,

If we create inflation we get Economic growth. 

That does seem like a dangerous game.


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## CanOz (4 June 2013)

You know its really amazing that all the members here keep trying to pick the worst economy amongst the biggest players...because if you think about it, they're all bad, everyone of them. Its like that saying though, "the best horse at the glue factory"...i.e. the US.

The other thing about all of this is that it has been engineered this way. That makes me think that they (the central banks and the Fed) want it this way.

So there must be some logic there somewhere...perhaps having a great debt free economy is not possible due to globalization and therefore to stop your currency appreciating beyond a practicality, you take on more debt to make your balance sheet look less attractive and be less susceptible to a major default by avoiding holding another major countries debt...

I don't know, but i find it hard to believe all this mess was not made on purpose...maybe i haven't articulated this very well, but perhaps someone else might get what I'm saying?

It just seems so strange that there is not one good economy amongst the major develop countries of the world, and its all getting worse!

So its fine to be a bear though the biggest bull market in this century, because all the fundamentals are crap, but the reality is somebody is making money as certain asset classes appreciate....While the bears stand by and say "this won't last long" and "I told you so"...

Y'all can either play along or age slowly and be spectators while you dig a hole and fill it with canned food. To me its a better time to be a technical trader than a fundamental investor and certainly not a good time to be an armchair economist / macro investor with a truck load of gold.

CanOz


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## waza1960 (4 June 2013)

> macro investor with a truck load of gold.




 Careful Can don't stir the Gold bugs up you know they're sensitive


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## CanOz (4 June 2013)

waza1960 said:


> Careful Can don't stir the Gold bugs up you know they're sensitive




Yeah, i know...i let that one slip...


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## FlyingFox (4 June 2013)

Trembling Hand said:


> The problem I see is that they have it ar$e about. It seems like this is their logic,
> 
> Economic growth comes with inflation.
> 
> ...




Isn't that the game all governments and central banks have been playing for a long time? GDP growth (not adjusted) = inflation plus productivity growth plus population . Since productivity and population growth are  going down hill, inflation it is. 

NGDPT and NGDPLT are just other ways of saying the same thing, in cases where there isn't demand growth  i.e in deflationary scenarios, the  except that you can actually justify higher inflation than the current 2-3 % targets.


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## white_goodman (4 June 2013)

Abenomics is trying to RAISE interest rates NOMINALLY, but look at REAL rates... higher long term bond yields indicate inflation expectations and growth expectations, this is the aim..

US long term bond yields went UP (ie bond prices down) with QE







thats the whole point... interest rates arent a stance of policy.. no-one thinks a country/Cbank with high inflation and high nominal rates are running tight policy..

after 2 decades of delfation at the door, the inflationary policy is a blessing, if you're really worried about runaway inflation in Japan you're an idiot.. Macro is great for counterfactuals.. Many people note the Yen weakening as great for Jap exports, yes this is true, but the ratio of imports/exports has shown that the Japanese consumer is benefiting most with better growth/wage prospects, outweighing the loss in PP from the exchange rate. There is no inflationary concerns in Japan, Abenomics is not going to turn into a black swan.. the money print = inflation = crisis meme is played out and wrong and is the refuge of tin hats everywhere


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## Trembling Hand (4 June 2013)

white_goodman said:


> thats the whole point... interest rates arent a stance of policy.. no-one thinks a country/Cbank with high inflation and high nominal rates are running tight policy..
> 
> after 2 decades of delfation at the door, the inflationary policy is a blessing, if you're really worried about runaway inflation in Japan you're an idiot.. Macro is great for counterfactuals.. Many people note the Yen weakening as great for Jap exports, yes this is true, but the ratio of imports/exports has shown that the Japanese consumer is benefiting most with better growth/wage prospects, outweighing the loss in PP from the exchange rate. There is no inflationary concerns in Japan, Abenomics is not going to turn into a black swan.. the money print = inflation = crisis meme is played out and wrong and is the refuge of tin hats everywhere




Yeah i agree, After all I would love some inflation in Japan. Would be great for my little pad I have there but Japan's problems are more than what Abenomics is targeting.


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## white_goodman (4 June 2013)

Trembling Hand said:


> Yeah i agree, After all I would love some inflation in Japan. Would be great for my little pad I have there but Japan's problems are more than what Abenomics is targeting.





this is true, structural and demographic:

http://marketmonetarist.com/tag/abenomics/

MP lifting wage and growth expectations cant hurt


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## Uncle Festivus (4 June 2013)

white_goodman said:


> There is no inflationary concerns in Japan, Abenomics is not going to turn into a black swan.. the money print = inflation = crisis meme is played out and wrong and is the refuge of tin hats everywhere




No inflationary concerns?? 

Japan increased wheat prices to flour millers by almost 10 percent, raising costs for companies including Nisshin Seifun Group Inc. (2002) and Nippon Flour Mills Co. (2001) as *a weaker yen made grain imports more expensive*.

On Wednesday, Nisshin Foods, a unit of Nisshin Seifun Group Inc., also said it will raise the prices of 10 home-use pasta sauce items by 9 to 11 percent, starting with July 1 shipments, due to rises in imported meat and tomato paste prices following the *sudden weakening of the yen.*

Food makers are feeling the effects of the economic policies of Prime Minister Shinzo Abe, though not in a good way, as *the weaker yen drives up prices of wheat, cooking oil and other imported raw materials*.

This side effect of Abenomics has been especially troublesome for the food industry.


Like TH said, they've got it *rse up & back to front - making things more expensive is a good thing????


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## white_goodman (4 June 2013)

disaster imminent!






the ratio of imports relative to exports has RISEN! thus the better growth/output expectations from the policy has more then offset the decline in Yen..

if u want to make individual baskets of goods u can come up with any CPI you want.. look at the headline number and tell me we are in trouble with inflation. Am i to infer that the deflationary period was the economic optimal in your estimation?

the high interest rate argument = high govt debt burden is also bunk, look at REAL rates


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## white_goodman (4 June 2013)

Uncle Festivus said:


> Like TH said, they've got it *rse up & back to front - making things more expensive is a good thing????




how goes that nightmare debt burden under deflation policy? what happen to velocity of money in MV=PY under a deflationary environment? what happens to velocity when inflationary and growth expectations come back? what does this indicate for their domestic economy? how effective was the unending fiscal stimulus policy in reigniting the economy?

these are all things you have to think about, their is no nirvana, but a policy of more of the same seems a little odd considering how successful Abenomics has been to date, regardless of money illusion


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## Uncle Festivus (4 June 2013)

white_goodman said:


> disaster imminent!
> 
> the ratio of imports relative to exports has RISEN! thus the better growth/output expectations from the policy has more then offset the decline in Yen..




That's not showing up in the numbers then?




Japan trade deficit widened in April to 880 billion yen as the boost to exporters from a weaker yen was overshadowed by *rising imports prices*.


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## white_goodman (5 June 2013)

more on jap policy and inflation expectations

http://thefaintofheart.wordpress.com/2013/06/04/a-visual-take-on-japan/


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## white_goodman (5 June 2013)

Uncle Festivus said:


> That's not showing up in the numbers then?
> 
> View attachment 52610
> 
> ...




well there are timeline issues here, but speaking historically and in theory the income effects from boosted AD 'should' outweigh the terms of trade effect... and you cant say that imports have risen 10% with Yen depreciation insinuating that being time zero without looking at the past exchange rates, deflation..

at record highs for Yen value domestic consumers were still struggling.. can you not see that income effects (higher nominal GDP/inflation expectations/agg demand) trump terms of trade/nominal exchange rate effects


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## Uncle Festivus (5 June 2013)

Trembling Hand said:


> Why would they go broke? They owe the money to domestic funds in Yen?




Demographics of an aging population ie JGB redemptions to simply live off let alone become rabid consumers, external debt and interest on that debt.


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## Uncle Festivus (5 June 2013)

CanOz said:


> So its fine to be a bear though the biggest bull market in this century, because all the fundamentals are crap, but the reality is somebody is making money as certain asset classes appreciate....While the bears stand by and say "this won't last long" and "I told you so"...
> 
> Y'all can either play along or age slowly and be spectators while you dig a hole and fill it with canned food. To me its a better time to be a technical trader than a fundamental investor and certainly not a good time to be an armchair economist / macro investor with a truck load of gold.
> 
> CanOz




Can't bears go long too (why no 21 days of POMO Tuesdays!)? Why do bears have to be 'spectators'? Who's got a truckload of gold?


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## Uncle Festivus (5 June 2013)

white_goodman said:


> well there are timeline issues here, but speaking historically and in theory the income effects from boosted AD 'should' outweigh the terms of trade effect... and you cant say that imports have risen 10% with Yen depreciation insinuating that being time zero without looking at the past exchange rates, deflation..
> 
> at record highs for Yen value domestic consumers were still struggling.. can you not see that income effects (higher nominal GDP/inflation expectations/agg demand) trump terms of trade/nominal exchange rate effects




Monthly wages including overtime and bonuses rose 0.3 percent from a year earlier to 273,427 yen ($2,746), the Labor Ministry said today in Tokyo

UBS AG analysts said Japan’s *shrinking labor force *means salaries need to rise even more *to prevent total wages from contracting *and damping consumer spending capacity. The *aggregate wage *level may not rise even with wages growing 1 percent per worker, Hong-Kong based economists Duncan Wooldridge and Silvia Liu wrote in a May 23 report. 

“Historically the growth rate in Japan’s labor force is an excellent indicator for inflation,” they said. “Can Japan sustainably lift aggregate demand above supply? If that cannot be done then it’s hard to see deflation resolved in a fundamentally positive way. Aggregate demand is heavily influenced by demographics and exports.”


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## white_goodman (5 June 2013)

Uncle Festivus said:


> Monthly wages including overtime and bonuses rose 0.3 percent from a year earlier to 273,427 yen ($2,746), the Labor Ministry said today in Tokyo
> 
> UBS AG analysts said Japan’s *shrinking labor force *means salaries need to rise even more *to prevent total wages from contracting *and damping consumer spending capacity. The *aggregate wage *level may not rise even with wages growing 1 percent per worker, Hong-Kong based economists Duncan Wooldridge and Silvia Liu wrote in a May 23 report.
> 
> “Historically the growth rate in Japan’s labor force is an excellent indicator for inflation,” they said. “Can Japan sustainably lift aggregate demand above supply? If that cannot be done then it’s hard to see deflation resolved in a fundamentally positive way. Aggregate demand is heavily influenced by demographics and exports.”





umm so you agree with me then that inflation is required to boost nominal wages,spending, GDP?


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## Uncle Festivus (5 June 2013)

white_goodman said:


> umm so you agree with me then that inflation is required to boost nominal wages,spending, GDP?




Depends on what type of inflation you are talking about - central bank inflation or consumer price inflation? It has not been established that their incomes are growing faster than price inflation as measured by things that matter like food and fuel, and last time I looked the majority of both of these were imported.


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## FlyingFox (5 June 2013)

white_goodman said:


> umm so you agree with me then that inflation is required to boost nominal wages,spending, GDP?




Wages are always lagging and the wage increase velocity will almost always be much slower than the rate at which the yen is being devalued.

Do you expect there to be 20-25% wage increases across the board in 6 mnths to a year?


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## FlyingFox (5 June 2013)

white_goodman said:


> There is no inflationary concerns in Japan, Abenomics is not going to turn into a black swan.. the money print = inflation = crisis meme is played out and wrong and is the refuge of tin hats everywhere




The danger is more from whether the domestic market believes the government or not. Why will you buy yen denominated long term bonds at 2% if the value of the yen going to be devalued at a significantly higher rate? 

Already you would be better off having assets in almost any other denomination than the yen in the past year (Japanese stocks excepted).


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## white_goodman (6 June 2013)

FlyingFox said:


> Wages are always lagging and the wage increase velocity will almost always be much slower than the rate at which the yen is being devalued.
> 
> Do you expect there to be 20-25% wage increases across the board in 6 mnths to a year?




1) Yen at the 80 level isnt time zero... its has history prior ie taking the highest valuation of the currency in its history as the base case isnt helpful

2) the relationship you speak of is not linear


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## Uncle Festivus (7 June 2013)

HONG KONG (MarketWatch) -- Japanese stocks slid for a third straight day Friday as exporters were pounded in the wake of the yen's massive rally overnight. The Nikkei Stock Average JP:NIK -0.89%  dropped 1.4% to 12,724.83, *entering a so-called bear market*, having dropped more than 20% from the peak it reached on May 23.

Ouch! Down 20% in 11 day's! Abenomics is really working well, just like all the other QE experiments?


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## CanOz (7 June 2013)

That has to be the fastest transition from daily uptrend to daily downtrend in history...no bracketing at all, just a pivot reversal, V top


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## white_goodman (7 June 2013)

Uncle Festivus said:


> Ouch! Down 20% in 11 day's! Abenomics is really working well, just like all the other QE experiments?




hello? theyve stepped of the gas, this is exactly what was going to heppen, BOJ got nervous cos they didnt realise QE meant yields up... entirely predictable if you see inflation expectations drop off a cliff..

once again you need to actually READ, not copy and paste info that u think is illuminating, yet you dont even understand. Your life is a facepalm


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## CanOz (7 June 2013)

I.E is the yield curve then? How is it represented there?


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## white_goodman (7 June 2013)

CanOz said:


> I.E is the yield curve then? How is it represented there?




sorry that is inflation expectations (IE), its from the link i posted above on this page

inflation expectations -> higher NGDP -> higher bond yields (you want the long end reflecting growth/inflation premium and avoid flight to quality which means low velocity/high saving) -> higher stocks prices


regarding velocity above the silly go to for austrian/conservative/monetarist economic position by youtube economists (im libertarian market monetarist so im not a lefty critiquing) is they simply think Money supply is up = inflation up = gold up = world ending yada yada

money demand/saving/flight to safety ie the Velocity (V) in MV = PY [ M= money supply sort of, P= price level/inflation, Y = real output/GDP] has offset the increase in CB balance sheets, if V was roughly stationary like what was assumed wrongly by Friedman (rest is beautiful soul) then yes the hyperinflation, over easy policy stuff would carry some weight... however nowhere in the western world is inflation a concern, output is shot.. savings rates are high, money demand is high, treasuries and cash are interchangeable at the ZLB. Interest on Reserves (IOR) also does nothing to incentivise banks to lend, also hurting V

The reason why inflationary expectations are important is because inflationary expectations of the future = inflation NOW (if u want the maths and argument fleshed out, google John Cochrane). Basically inflationary expectations = higher bond yield premium = people dont roll over their bonds into bonds but stocks, property, businesses, other forms of real assets or simply just spend and produce higher output as Velocity goes down or up whatever way u view it..

its funny how positions go from the pushing on a string analogy (ie QE doesnt work) to hyperinflation story (QE works too much too well), and yet people dont see the contradiction in the argument.


NOTE: this is how u present an arguement/idea Uncle Festivus, copy and pasting and bolding things doesnt represent original thought, opinion or understanding, it shows the opposite

also a side note, if you change the word from inflation to increasing nominal ouput or nominal GDP, or Nominal Income then people would see it clearer, inflation is a bit of a naughty word in some circles understandably. WHy is nominal output a concern..

Houses are bought in nominal dollars
Debts are in nominal dollars
Peoples wage expectations are in nominal terms
there is an element of money illusion
Accounts are done in nominal dollars

this isnt a cry for 10% inflation, just the Fed and ECB maybe trying to hit their target mandate of 2% just once..


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## FlyingFox (7 June 2013)

white_goodman said:


> 1) Yen at the 80 level isnt time zero... its has history prior ie taking the highest valuation of the currency in its history as the base case isnt helpful




Didn't say it was. However it has got to this point over a relatively long period of time not a couple of months. 



white_goodman said:


> 2) the relationship you speak of is not linear




Same as above. I know they are not linear especially if currency deflation is sudden and strong. 

My issue with these measures are that they are sudden and extreme without thought to consequences. China on teh other hand has been pegging its currency for a long time. Like you say in a later post, they didn't realise that this means higher yields on bonds and panicked.

What did they think was going to happen if you decide to double your money supply?


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## white_goodman (7 June 2013)

FlyingFox said:


> My issue with these measures are that they are sudden and extreme without thought to consequences. China on teh other hand has been pegging its currency for a long time. Like you say in a later post, they didn't realise that this means higher yields on bonds and panicked.
> 
> What did they think was going to happen if you decide to double your money supply?




theyve been calling for this for quite a while, bernanke instructed them to do this in 2003, anything i guess is sudden if one day its not in place and then the next it is.. BOJ is a board, not all members are agreed similar to different opinions coming out of the US Fed.

Doubling money supply only means something not at the ZLB.


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## Uncle Festivus (7 June 2013)

white_goodman said:


> hello? theyve stepped of the gas, this is exactly what was going to heppen, BOJ got nervous cos they didnt realise QE meant yields up... entirely predictable if you see inflation expectations drop off a cliff..
> 
> once again you need to actually READ, not copy and paste info that u think is illuminating, yet you dont even understand. Your life is a facepalm




No, you have to read what's posted - all facts about the 'correction' in the Nikkei - unless you need someone to read for you?

_'BOJ got nervous cos they didnt realise QE meant yields up... entirely predictable if you see inflation expectations drop off a cliff.._'

So now you are saying that you know more than the BOJ as it was 'entirely predictable'?? You have excelled yourself again.

You're not getting much value from that piece of paper the uni gave you saying that you know more than the rest of us :bowdown:


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## IFocus (7 June 2013)

Uncle Festivus said:


> Demographics of an aging population ie JGB redemptions to simply live off let alone become rabid consumers, external debt and interest on that debt.




Unless there is a rabbit in the hat hard to see how they escape refinancing the debt currently held by that ageing population. 

All a minor detail I guess.


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## chops_a_must (7 June 2013)

CanOz said:


> You know its really amazing that all the members here keep trying to pick the worst economy amongst the biggest players...because if you think about it, they're all bad, everyone of them. Its like that saying though, "the best horse at the glue factory"...i.e. the US.
> 
> CanOz




What a quote!



IFocus said:


> Unless there is a rabbit in the hat hard to see how they escape refinancing the debt currently held by that ageing population.
> 
> All a minor detail I guess.




They'll begin an immigration program.


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## Trembling Hand (7 June 2013)

chops_a_must said:


> They'll begin an immigration program.




No they won't. They will commit huri kuri before they are forced to drop their xenophobic ways.


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## FlyingFox (7 June 2013)

chops_a_must said:


> They'll begin an immigration program.




From where?


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## Uncle Festivus (7 June 2013)

white_goodman said:


> NOTE: this is how u present an arguement/idea Uncle Festivus, copy and pasting and bolding things doesnt represent original thought, opinion or understanding, it shows the opposite




So let's clarify this - if I post a qoute of a _fact_ then shame on me because that is not an 'original thought', but if you post a link to somebody else's _opinion_ or _theory_ then that's OK??


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## chops_a_must (7 June 2013)

Trembling Hand said:


> No they won't. They will commit huri kuri before they are forced to drop their xenophobic ways.




Here fishy fishy.


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## white_goodman (8 June 2013)

Uncle Festivus said:


> So let's clarify this - if I post a qoute of a _fact_ then shame on me because that is not an 'original thought', but if you post a link to somebody else's _opinion_ or _theory_ then that's OK??




you can do what u want, no-one listens


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## MARKETWINNER (8 June 2013)

_I saw following link today. Very interesting. They also want to invest more in stocks.

http://www.bloomberg.com/news/2013-...fund-cutting-local-bonds-to-buy-equities.html

Japan’s Pension Fund Cutting Local Bonds to Buy Equities

My ideas are not a recommendation to either buy or sell any security or currency. Please do your own research prior to making any investment decisions. Please note that I do not endorse or take responsibility for material in the above hyper-linked site._


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## white_goodman (13 June 2013)

http://marketmonetarist.com/2013/06/13/mr-kurodas-credibility-breakdown/

cant try and hit inflation then cry when bond yields rise and stop the party


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## sinner (13 June 2013)

white_goodman said:


> http://marketmonetarist.com/2013/06/13/mr-kurodas-credibility-breakdown/
> 
> cant try and hit inflation then cry when bond yields rise and stop the party




I thought there was an established relationship between the size of the monetary base as a % of GDP, and short term rates?

Copying John Hussmans idea here, I took some data from the World Bank to make the below chart. Moving back to 2% deposit rates implies a significant reduction in the size of M2 or similarly significant growth in GDP. Considering the unlikely nature of the BoJ reducing the size of their balance sheet, or sustained economic growth momentum in the Japanese economy, my only question for the Bernankes and Kurodas of the world is

*How?*





History implies that if anything, recent BoJ actions will drive the time cost of money even lower.


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## Trembling Hand (19 June 2013)

Japan Exports Surge


> Japan’s exports surged by the most since 2010 as the yen weakened and shipments to the U.S. jumped, boosting Prime Minister Shinzo Abe’s campaign to revive the world’s third-largest economy.
> Overseas shipments increased 10.1 percent from a year earlie


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## Uncle Festivus (19 June 2013)

Japan Imports Surge

Japan’s trade deficit rose nearly 10 percent in May to 993.9 billion yen (nearly $10.5 billion) as rising costs for imports due to the cheaper yen matched a rebound in exports, the Ministry of Finance reported Wednesday.

Japan trade balance came to a deficit of 994 billion yen in May as the boost to exporters from a weaker yen and a pick up in global demand was overshadowed by high energy import cost. 

Exports to the United States rose 16.3 percent to 1041 billion yen, while exports to the debt-ridden European Union declined 4.9 percent to 529 billion yen.

Japanese imports rose 10 percent yoy to 6762 billion yen, up for a seventh consecutive month.


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## Knobby22 (19 June 2013)

They have a lot of infrastructure to rebuild. Placing the orders early? Also updating equipment to raise supply?
Not necessarily a bad thing.


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## Uncle Festivus (19 June 2013)

Increasing cost of imports of raw materials & fuel while exporting cars to the US paid for with non-revolving credit, at the same time US exports become less competitive? How long will the US let this go on for? Just collateral damage/noise from the current trade/currency wars.

Just a little bit more to go for Abe?


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## CanOz (19 June 2013)

Japan has just recently started to really flood with liquidity...China on the other hand has been flooding the country with liquidity for longer and is in the midst of a huge bubble in fixed assets. I think the Blk Swan has more of a chance to appear in Chinda than Japan...

CanOz


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## Uncle Festivus (19 June 2013)

CanOz said:


> Japan has just recently started to really flood with liquidity...China on the other hand has been flooding the country with liquidity for longer and is in the midst of a huge bubble in fixed assets. I think the Blk Swan has more of a chance to appear in Chinda than Japan...
> 
> CanOz




Who's gonna blink first


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## CanOz (19 June 2013)

Uncle Festivus said:


> Who's gonna blink first




The world is awash with debt and that analogy about "the best horse at the glue factory" is really getting some use. The problem is, you'll be better off to have you money with the best horse when things go pear shaped, but which horse is the best? Is it still the US?

CanOz


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## sinner (3 September 2015)

Was just poking around on FRED looking for some Japan data and remembered this thread.

Now if we recall the previous argument on this thread was essentially whether or not Abenomics would raise rates (under the assumption that long rates are a proxy for inflation/growth expectations):



white_goodman said:


> Abenomics is trying to RAISE interest rates NOMINALLY, but look at REAL rates... higher long term bond yields indicate inflation expectations and growth expectations, this is the aim..




Now, admittedly back in 2013 I was a little wet behind the ears on this stuff, but from my understanding an increase in nominal rates requires a reduction in the size of CB balance sheet relative to GDP. That implies a necessary balance sheet reduction *or* increase in GDP.



sinner said:


> History implies that if anything, recent BoJ actions will drive the time cost of money even lower.




Let's take a look back, with the power of data! The fun all started in Apr 2013, so these charts are all plot from Jan 2013 to current. I'm not trying to start an argument, but interesting to look at the charts with the benefit of hindsight.

First up, rolling (monthly) YoY percentage change in BoJ total assets. Huge balance sheet expansion here:



Next up, rolling (quarterly) YoY percentage change in Japan GDP. Unfortunately not enough growth there to allow an increase in nominal rates based on the relationship highlighted in my previous post:



and of course, the proof being in the pudding, 10Y JGB rates (short term rates are even worse), we can see the relationship did hold true, as the balance sheet of the CB expanded, rates (time cost of money) declined even further:



Rolling (monthly) YoY percentage change in CPI. Yay inflation! But, if we think about it for a second, this means that real GDP growth   negative since mid 2014 and real interest rates negative basically since Abenomics started:



So where did it go?



Now this might make me seem bearish on Japan or whatever, but taking a step back to look, Japan hasn't done too bad:
* Raised asset prices
* Loosened monetary policy
* Boosted nominal GDP
* Weakened currency vs consumer partner currencies like EUR and USD
* Strengthened or maintained currency vs producer partners currencies like AUD and critical industrial imports like oil.
* Didn't lose significant JPY value to gold.

Could've been worse.


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## Trembling Hand (3 September 2015)

sinner said:


> Could've been worse.




There is always tomorrow.


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