BOJ faces crunch time as oil slump threatens inflation target

Massive amount of QE and we get excessively low inflation. What happened to all the doomsayers on this board who predicted "hyperinflation" from this unprecedented amount of "money printing"?

JeffLee: Asset prices have shot up since the start of QE, doubling in a couple of years, whilst the value of the Yen has plunged. We have to wait a little longer until MugAbenomics filters through to consumer prices. But, rest assured, with Abe following the example of Zimbabwe in spending money he does not have and cannot possibly repay the end result will be the same.

announce more asset purchases, weaken the yen hugely, talk about the third arrow and sit back and wait for the tsunami.

Yet more evidence that the Bank of Japan is run by unqualified hacks with useless degrees from the world's "leading" economics departments, who in fact have zero understanding of how the real world actually operates. By the warped logic of "inflationary expectations" if oil prices were going up, people who would then have less money left in their pockets would spend more money. But because oil prices are going down, people who now have more money left in their pockets will spend less money. You can't make it up.

Massive amount of QE and we get excessively low inflation.

... so what has QE achieved, that it was supposed to achieve? Wasn't it supposed to achieve inflation?

It makes one wonder why the ECB is even considering it's own version of this failed policy, for all it's risks.

At least the rich have got richer as a result, otherwise there'd be no consolation.

What happened to all the doomsayers on this board who predicted "hyperinflation" from this unprecedented amount of "money printing"?

The BOJ hasn't even finished QE and exited the policy yet, and you're jumping to conclusions. Will you be lining up to buy JGBs when the BOJ starts to sell, should it come to that?

Meanwhile the dollar/yen rate has dropped circa 50% in falling from the 80's to the 120's (just the start). But this didn't happen in la-la-land.

It's a good thing Jeff Lee still thinks the massive debt Japan has accumulated will have no negative effects on the country at all, especially since all that borrowing activity...has produced no concrete results other than a massive asset bubble in the stock market!

Here's an interesting article on how events elsewhere might have blown up Abe's central bank fantasies for good:

http://www.business-standard.com/article/opinion/william-pesek-the-swiss-just-made-japan-s-job-harder-115011800675_1.html

A personal favorite quote from the article: "Since April 2013, Japan's central banker has been pumping trillions of dollars into the economy in an attempt to generate 2 per cent inflation. But in a mature, aging economy like Japan's, the effort is 95 per cent about confidence. In order to "drastically convert the deflationary mindset," as Kuroda puts it, the Bank of Japan (BoJ) must transform sentiment among households and businesses. Kuroda's massive bond purchases mean little if the Japanese don't trust that better days lay ahead."

In other words, for all the activity, in the end Abenomics is a confidence trick. So...remind us how's that consumer confidence rate going these days??

Doesn't this mean that cost of power/energy from oil-fired power plants will now get much cheaper, and fuel and transportation costs will decrease.

Industry has been complaining about this for years...isn't this good for them?

I too am confused. Considering Japan has to import its fossil fuels, surely lower costs can only benefit consumers & manufacturing. Hoping for inflation is like praying for a house fire so that it will bring up the daffodils

lets not forget the US QE went on for over 5 years and $5trillion+ printed before any real economic growth happened

JeffLee,

I don't recall many if any predicting hyperinflation, it was more along the lines of IF hyperinflation ever kicked in it would be killer on Japan

That said all the printing of $$$$ isn't doing much of anything except for the rich building up their Ponzi dollar$ in the markets.

wtfjapan,

lets not forget the US QE went on for over 5 years and $5trillion+ printed before any real economic growth happened

I wonder if there is actually a relationship at all?

It seems that there has been a lid on government spending in the US too, due to the so-called "sequestration". It's strange - willy-nilly government spending is supposed to save us all, but despite (?) the sequestration limiting government spending, the economy grew anyway, and is now seen as the world's investment hotspot, and budget deficit showing rapid improvement too? Who'd have thunk it?

"Asset prices have shot up since the start of QE, doubling in a couple of years,"

Like property and oil? LOL. Then you must live in a different Japan from the one I live in. Stocks are up, but certainly not by that much. I find Japan one of the developed world's most affordable places.

"with Abe following the example of Zimbabwe in spending money he does not have"

Abe has all the money he ever needs, given that Japan's obligations are priced in yen and Japan is the sole issuer of that currency. As story indicates, piles of yen can be printed with no repercussions. That's a good position to be in.

"Meanwhile the dollar/yen rate has dropped circa 50%"

So what? The real risk was when the yen was at a record high post earthquake. Japanese officials have since talked it down. because a cheaper yen was the objective, which was achieved. It has fallen somewhat below expectations, but that is not a serious risk. Japan's economy is still humming along, although your constant warnings and projections of doomsday are constantly....wrong.

YOu can only say "just wait" (ie, moving the goal posts) for so long.

Since April 2013, Japan's central banker has been pumping trillions of dollars into the economy in an attempt to generate 2 per cent inflation

Actually, the Bank of Japan hasn't pumped a single yen into the economy through QE, and it hasn't "printed money" either. All QE does is prevent existing yen from being held in risk-free, interest paying Government of Japan bonds. Also known as a free lunch. When they stop doing QE all the yen will flood back into bonds at whatever interest rate the BOJ wants to set them at. And the Doomers will shout "Yeah but just wait!!!" and "Zimbabwe!!!"

Meanwhile the dollar/yen rate has dropped circa 50% in falling from the 80's to the 120's (just the start)

Exactly what QE was designed to do (either intentionally or by accident). Push money out of bonds and force people to seek yield elsewhere, pushing up the stock market and pushing down the yen. They can push things back the other way anytime they want. And whichever way things go the Doomers will shout "Yeah, but just wait!!!" and "Zimbabwe!!!"

Just Wait. Zimbabwe. although to be serious, I do worry a bit that the conswequences may not all be good. not sure that ALL of Japan's obligations are in Yen. and also not sure that I would trust the BoJ (which is basically run by old Japanese geezers who follow the accepted wisdom of the lies of Greenspan and Bernanke and nopw Yellen about money printing and the need for inflation and so on) to get this right. i like a weaker yen because have a lot of money outside Japan but my wine bill has gone up and my gas bill hasn't gone down much yet.......

Abe has all the money he ever needs, given that Japan's obligations are priced in yen and Japan is the sole issuer of that currency. As story indicates, piles of yen can be printed with no repercussions. That's a good position to be in.

Since Japan is an island with no resources, it is nor true that all of Japan's obligations are priced in yen. How about oil? Gas? Gold? Silver? How much does Japan import each year? How much does Japan import each year from foreign countries? These are not paid for in yen.

Exactly what QE was designed to do (either intentionally or by accident).

Wrong, QE was designed to cause "cost-pull" inflation, with the resulting assets used to stimulate the economy in the hopes of starting demand-pull inflation. Neither have happened, so QE has not succeeded. The BOJ needs to cause inflation in any way possible because all of the government's entitlement programs and normal spending plans were formulated with inflation in mind. Without this inflation, the weight of the government's debts increases, and servicing the debt becomes more difficult.

Just Wait. Zimbabwe. Looks like QE is becoming the norm across all the world and so we will see competitive QE and currency wars and saving and proper investment will become futile. so the basis of our "Capitalist" system will slowly be destroyed. wonder what comes next.

Just Wait. Zimbabwe. Love it!

Japanese officials have since talked it down. because a cheaper yen was the objective, which was achieved.

No, the objective was 2% inflation, and that hasn't been achieved despite all the opportunity for action. (The cheaper yen, supposedly just a side-effect of the inflation target, hasn't boosted exports as much as intended either. Polls show the majority of people not feeling positive effects from Abenomics.)

It has fallen somewhat below expectations, but that is not a serious risk.

It's doubtful that it's stopped falling already, and it hasn't fallen below my expectations. Although in the near-term we have to see how the cheaper oil effects the trade deficit. This might bring some temporary relief.

your constant warnings and projections of doomsday are constantly....wrong.

You still haven't figured out what a "warning" is, and even proponents of reflationary policies agree that there are such risks. BOJ chief Kuroda is one. Your view that there are no risks is simply extremist.

YOu can only say "just wait" (ie, moving the goal posts) for so long.

You are the one impatiently demanding that a problem must occur before you'll acknowledge a risk is (was) present. That is backwards looking balony.

Until the BOJ tightens monetary policy, winding down it's balance sheet and doing so successfully (or the government addresses its fiscal mess first, which I consider less likely), the risks will be there. Even if it all works out fine - as I hope it does - the risks would have been there. A risk doesn't have to come to fruition to exist. Just look at what happened with the Swiss franc the other day. Stuff happens.

Normally, a low oil price would allow the common folk to spend more on other goods and services (at presumably a lower price since oil affects all prices directly or indirectly), a good thing in an deflationary economy. This, however, is BOJ's home turf...

They can push things back the other way anytime they want.

They have failed to get inflation up to the target, so I don't share your faith that they'd be able to bring it down to target when the time comes. Indeed I don't know how they think they can.

"How about oil? Gas? Gold? Silver?"

I was talking about fiscal obligations. Anyway, Japan's current account in is the black by around 400 bil, last I heard..

"No, the objective was 2% inflation,"

Err, the objective of "talking down the yen" is to get the yen -- lower, which is what happened. the inflation target isn't met largely because of cheaper energy, which .....believe it or not.... is a good thing for an energy importer like Japan.

But hey, keep up that doomsday narrative.

Anyone with a pea pod of a brain could look at the spiral-down wage effect caused by the creation of a global labour pool created when deregulation set capital free, the deindustrialization shift to lower paying service sector work, the dampening on purchasing from the demographic storm front and the impact of a higher consumption tax and conclude that demand-pull inflation was never going to happen.

So we have to conclude that the intention all along was class warfare, with QE driving up stock prices to further enrich the investment and corporate elite.

Err, the objective of "talking down the yen" is to get the yen -- lower

Err, it's not talking down the yen that did that. It's full-throttle JGB purchases that did that. If getting the yen weaker only required talk, the previous administration would have been just as successful.

But hey, keep up that doomsday narrative.

Keep your blinkers on, and your definition of "risk" shut firmly away in your dictionary.

"oil slump threatens inflation target"

Heck, I hope the inflation target is destroyed! I'm getting tired of paying higher prices. The cheese I've been paying about 800 yen for has gone up to about 1,000 yen in the past month!

The realities of BOJ & LDP Abenomics policies are basically a re-distribution of wealth from savers, importers, citizens to "bigger" government, exporters and foreign tourists. A 2% inflation target may sound good for conventional economics, but is unwise for an aging and declining demographics. Abenomics have its limitations. There is a need for reality check:

A 120 Yen is good enough for export competitiveness, don't go overboard and kill the importers. Focus on bringing in much more tourists. Target annual 30 million visitors within 5 years, from current 13 million. Don't follow the Europe model of taking in much more foreign immigrants, look at France. Japan is nice because it is Japanese. It is a fantastically harmony based society. People are extremely honest and law abiding. Think of better ways to revitalized the smaller cities and rural areas. Tokyo, Osaka and Kyoto have no problem taking care of themselves. Know someone who has probably visited Japan more than 50 times, and still enjoying Japan and its beauty. Japan has so much to offer.

Anyone with a pea pod of a brain could look at the spiral-down wage effect caused by the creation of a global labour pool created when deregulation set capital free, the deindustrialization shift to lower paying service sector work, the dampening on purchasing from the demographic storm front and the impact of a higher consumption tax and conclude that demand-pull inflation was never going to happen.

And this is a good thing for the rest of the world, which for generations has had no jobs, no money, and no opportunity. Your belief that companies should keep their assets in the countries where they do business is both selfish, and foolish. Success in all things, be it life, business, or whatever, is the result of hard work and competition. If my home country thinks that I should invest my money there instead of abroad, then they will have to compete with other countries to keep my money. They will have to take only a fair share, and provide a fair amount of services in exchange. If they can't, or won't, then I will invest somewhere else. That I have this option will do much to keep my home country from becoming too big for it's britches, though many, particularly Japan, have long passed that stage.

If Japan weren't taking 35% of my profits off the top, as well as charging me personal income tax, residency tax, consumption tax upon my rent, supplies, and other overhead, not to mention sundry other taxes and fees, then perhaps I could lower my prices somewhat. If I lowered my prices, more people could afford my goods and services. If more people could afford my goods and services, then I would have to produce more goods, and hire more people to perform services. But such isn't the case, and I, like many other business people, spend the greater part of my income on tax and other bureaucracy-related costs.