Is Japan the Black Swan?

[white_goodman]

more on jap policy and inflation expectations

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

 

[white_goodman]

That's not showing up in the numbers then?

View attachment 52610

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.

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

 

[Uncle Festivus]

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.

 

[Uncle Festivus]

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?

 

[Uncle Festivus]

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.”

 

[white_goodman]

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?

 

[Uncle Festivus]

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.

 

[FlyingFox]

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?

 

[FlyingFox]

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).

 

[white_goodman]

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

 

[Uncle Festivus]

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?

 

[CanOz]

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

 

[white_goodman]

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

 

[CanOz]

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

 

[white_goodman]

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..

 

[FlyingFox]

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.

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?

 

[white_goodman]

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.

 

[Uncle Festivus]

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:

 

[IFocus]

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.

 

[chops_a_must]

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!

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.