Thursday, December 27, 2012

Japan PM "stimulus" plan: "Hey, BoJ, do more QE"

So Shinzo Abe is back in power, carried to victory on the promise of massive stimulus designed to bring the Japanese economy roarding back to life and end years of deflation.

Speculators jump all over the yen, selling it down to levels not seen in nearly two years.

And what's the big stimulus plan?

More Quantitative Easing. (Can somebody tell Abe and the specs that that hasn't worked for the past 10 years?)

The Bank of Japan should buy more long-dated government bonds and a wider variety of risk asset types, including foreign bonds, to achieve 2 to 3 percent inflation, Koichi Hamada, a special economic adviser to Prime Minister Shinzo Abe, said on Thursday.
Read full story here.

If this is their plan, it's crazy. Just more of the same. I am long the yen. Wait 'til they restart the nukes and the country's trade deficit goes back into surplus.

15 comments:

JD said...

I agree with the view on QE -- but I would have thought that buying foreign bonds could help to weaken the currency much more than the so-called "debasement" of traditional QE?

Matt Franko said...

JD: "buying foreign bonds "

Depends on whether the BoJ people know it is about price rather than quantity...

From what Mike has written previously wrt his experience on the floor, looks like they did know once it was about price... is that knowledge still there?

But if they have been taking their cues from the US Fed lately, they will lower their offer for USTs "to get a good deal for the Japanese taxpayers" and this would have the opposite effect (ie would stregthen the Yen imo) as they would be offering less Yen for USD NFAs... to get their desired effect, they have to seek/foment higher prices (in Yen) for the USD NFAs they buy...

rsp



Ryan Harris said...
This comment has been removed by the author.
Mike Norman said...

I could see where I am wrong on the yen based on Japan's trade picture, which is still deeply negative. Perhaps it would have been better to wait for a nuke restart before going long, but it is what it is...I am long.

Joshua Wojnilower said...

Mike,

I think you'll be right on the Yen bet, although may require a bit more pain first. With all the hype around Abe's reelection, the likely outcome is larger QE and a higher inflation target. As Warren Mosler pointed out a little while back, that plan without direct $ buying is a recipe for Yen strength and massive short covering.

Earlier today I posted about Abe's stance on fiscal policy. His previous term saw a steep drop in the deficit as he tried to balance the budget. I think people are completely missing the fiscal story here http://bubblesandbusts.blogspot.com/2012/12/the-real-story-behind-japans-re.html

googleheim said...

what is the matter with QE ?

I thought that is what MMT is all about QE1 + QE2 + ... QE(N) ??

what is the deal, Matt ?

paul said...

"I thought that is what MMT is all about QE1 + QE2 + ... QE(N) ?? - googleheim

You're making a joke here....right?

googleheim said...

No

I am out of the loop for while

But all I have ever heard here at this blog is QE QE QE up the wazzoo.

This is the first time I have heard MMT'r talk bad about QE.

Please explain and spell out for the baked lays out here

Adam1 said...

@google,
QE is just a swap of one financial asset (reserves) for another (bonds, MBS, etc… whatever the FED is buying that day) – no net new financial assets are created. Additionally, reserves basically earn zero interest and are replacing assets that do earn interest so the net effect is actually lower interest income earned by the non-government sector over time which means less spendable income too.
Now all those reserves from QE can and do drive down rates but without creditworthy customers capable of servicing more debt it’s not like they’re going to start a lending boom anytime soon and hence the economy limps along. (Note, I’m not trying to imply that those reserves will be “lent out” which is what many people think and is another reason why QE always ends up not yielding growth – because that’s not how lending works).

Tom Hickey said...

Right. And the hidden agenda of QE was to take risk-free assets off the table to increase purchases of riskier assets, i.e., elevate riskier assets to a level higher than they would otherwise be. This elevated equities, for example, and was considered the Bernanke put.

Fed bond purchases also made tsys scarcer along the yield curve, raising prices and lowering yields, keeping mortgage rates low and supporting housing prices. Otherwise, the banks would have been holding assets worth a lot less and there would have been a deeper financial crisis.

googleheim said...

So in a checklist paradigm

what would Mosler-Norman or what would MMT do ?

Sounds like Investment as a function of Spending cannot
occur under QE.

What is the alternative ?

paul said...

"What is the alternative ?" - googleheim

Bigger deficits. Or, we could get our trading partners to start spending those USD balances they've been hoarding.

paul said...

Oops. That's what we need to do.

Japan needs something similar.

Tom Hickey said...

@ googleheim

The govt deficit is too low to offset nongovt saving desire.

So increase fiscal aimed at increasing effective demand. See Warren's 10 Dec
The MMT Grand Bargain: Raise Social Security Benefits and Suspend FICA!!! as well as the proposals in the menu bar at moslereconomics.com, for his recs.

Chewitup said...

Mike,
With Chinese saber-rattling with Japan, you may see a military "stimulus" this year. I don't think they talk about it, but it's there.