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'Half-baked' deflation treatment worsens the issue, BOJ chief says

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The half-wit Kuroda's devaluation of the Yen will increase inflation by increasing the costs of imports, such as gas, coal, oil, food etc. In that sense he might succeed in meeting his arbitrary 2% target. But it's hard to see how that will help the economy. If people have to pay more for utilities and food they will have less to spend on other goods and services. Exporters might do a bit better, but not enough to overcome the loss of domestic demand.

Personally, I buy things because I need them: the price in a year's time is irrelevant. If Kuroda thinks there is a huge pool of pent-up demand waiting to be released if only he can get inflation rising he is sadly deluded.

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“Conversion of the deflationary mindset has been steadily progressing under the (policy). Such progress should not be stopped now,” Kuroda said Wednesday.

I don't see the "deflationary mindset" changing because the BOJ steps up its asset purchases. Inflation comes from increased demand for scarce or limited supply of goods or services. For demand to go up, net incomes need to go up.

Businesses need higher profits, and more leeway to invest in new ventures, and hire more people at better wages. The market needs to be made more competitive with deregulation, and a more open market place.

Abenomics doesn't achieve any of the above. It's only achievement is economic stagnation.

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JBinJapan Nov. 06, 2014 - 07:24AM JST Businesses need higher profits, and more leeway to invest in new ventures, and hire more people at better wages. The market needs to be made more competitive with deregulation, and a more open market place. Abenomics doesn't achieve any of the above. It's only achievement is economic stagnation.

This is a structural problem the Japanese stock market faces. One source of frustration in the eyes of foreign investors is the 70 trillion yen cash cushion Japanese companies are sitting on. Years of deflation have forced companies to adopt a defensive stance. With sales falling, they curbed investment for the future, skipping wage hikes and skimping on dividend payouts. Corporate cash holdings grew as consumer prices fell, with the two creating a spectacular inverse correlation. Foreign investors are watching to see if Abe can succeed in convincing Japanese companies to abandon the mindset that became entrenched over the past two decades. Corporate managers in Japan seldom face outside pressure even if their actions are hurting corporate value, since many shareholders, including banks, do not make any demands. But for the rest, the only way to break out of the value trap is to clear any doubts over growth and governance.

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Japan’s economy, now the world’s third largest, has suffered through more than a decade of deflation, a debilitating phenomenon that encourages consumers to put off purchases in the knowledge that things will be cheaper in the future. I am so sick of this comment. Every article about the quantitative easing has this comment in it. People were not putting off buying, first they had most things they needed, how many big screen TV's does one need? The population is getting older, which means they aren't buying or building houses. And mostly, people are worried about the future, so they keep saving money, it is a Japanese custom. Even during the bubble years, while some were spending like a drunken sailor, most people were socking away their salaries and bonuses.

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The half-wit Kuroda's devaluation of the Yen will increase inflation by increasing the costs of imports, such as gas, coal, oil, food etc. In that sense he might succeed in meeting his arbitrary 2% target.

If you include those items, it already had achieved over 2%. What we're talking about here are core consumer price index.

One source of frustration in the eyes of foreign investors is the 70 trillion yen cash cushion Japanese companies are sitting on. Years of deflation have forced companies to adopt a defensive stance. With sales falling, they curbed

Once again, sfjp330 with his typical copy/paste job from Nikkei Asian Review article in May about the NTT when the Nikkei was around 1,400. A lot had happened since and most notably the rise to 1,700 level as well as the recent financial release of Toyota on the verge of recording the largest operating profit amount in their history.

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nigelboyNov. 06, 2014 - 08:29AM JST. A lot had happened since and most notably the rise to 1,700 level as well as the recent financial release of Toyota on the verge of recording the largest operating profit amount in their history.

Yes, about the same level as 1986.

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Yes, about the same level as 1986.

Sorry. Meant to say 14,000 and now 17,000.

It was around 7,700 just a few years ago.

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nigelboyNov. 06, 2014 - 08:42AM JST Sorry. Meant to say 14,000 and now 17,000. It was around 7,700 just a few years ago.

What's so good about that? It's still 3,000 less than 1987 when Nikkei was over 20,000. To be realistic, why don't you compare U.S. stocks from 1986 to now versus Nikkei. Japan stocks are a joke.

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Critics charge that monetary policy alone cannot

I believe the critics are probably right. Deflation is more likely a symptom of the disease of a low growth economy burdened down with overregulation and years of unproductive reallocation of scarce resources by government through centrally planned, debt-financed spending.

The BOJ's policy may indeed boost inflation expectations through currency devaluation, but artificially increasing the demand for counterproductive government spending is unhelpful, to put it mildly.

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But for the rest, the only way to break out of the value trap is to clear any doubts over growth and governance.

I agree, but, I think the way the government is going about it is wrong, and, ultimately, economically unsound. True, companies are sitting on a pile of cash. However, raising taxes, and strong-arming salary hikes out of businesses isn't the way to go.

Tax cuts on income would go a long way to boosting confidence, and consumer spending. This in turn would drive demand (and inflation). This would give companies opportunities, and incentives to invest, and expand their business.

The current tax regime only encourages people to save more money, and delay discretionary purchases. The BOJ's actions aren't doing much expect making those in bond markets happy. There's nothing there that translates into more jobs, more disposable income, and consumer activity.

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What's so good about that? It's still 3,000 less than 1987 when Nikkei was over 20,000. To be realistic, why don't you compare U.S. stocks from 1986 to now versus Nikkei. Japan stocks are a joke.

I still don't understand your point. Japan went on and experienced a native bubble and exploded thereafter. Why would anybody want to go back to that?

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The BOJ's actions aren't doing much expect making those in bond markets happy.

Whether the BOJ's actions have that effect or not I don't know, but keeping the bond markets happy also keeps all the families with a mortgage to pay off happy. They may not know it now, but if their monthly mortgage repayments went up, I imagine it would probably have greater negative effect on consumption than the sales tax hike did.

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How dealing with the economy is compared to medical treatment is beyond me. all the money printed and debt incurred and wasteful spending of the last 20 years and more have done nothing to avoid deflation (although i do question whether i would rather live in a deflationalry Japan or a not yet deflationary Europe) - doublung down must surely end in disaster.

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@scrote I couldn't agree more.

@MarkX Your comment reflects what I hear from the many pensioners who live around me, and from many of those still working, as well. The "pent-up demand" seems to be largely BS, for most common people. There are something like 8 million empty housing units across Japan, and while many of those are empty because of people moving from the country to the city, and others because it's too expensive to demolish a house and to keep a residential property empty (the property taxes on vacant residential land are ridiculous), that many empty units don'r indicate a huge demand for new housing. That's not surprising given the greying of society and the reduced birthrate. Anyone not worried about the future since the bubble burst would have to be in some sort of denial, unless independently wealthy like many of the politicians.

As far as I can see, the manufacturers whom the Abenomics crowd are courting and benefiting have already made their decisions, moving manufacturing offshore and hiring cheaper labor there, combined with massive "restructuring" of many employees here who were/are still of working age. The trend in hiring domestically has been to temporary and/or part-time workers. Expecting them to hire more full-time locals and increase their salaries is unrealistic in the extreme. They will continue to sit on cash and spend it, when the right time comes, on further manufacturing overseas, with cheaper costs, not on increased manufacturing plant or full-time, permanent employees here.

It seems to me that the business owners most likely to hire their fellow Japanese if they could are the very people suffering most from the effects of Abenomics: the small and medium business owners who either rely on imports or cannot move their operations offshore, or both.

The market for high-ticket items has shrunk here, predictably, and is very unlikely, IMO, to grow much. How many new TVs or cars are needed as the population ages? I suppose the posters here in JT who quickly jump on every news item about a senior in a car wreck ought to agree that a graying society needs fewer cars. Increasing the prices of and taxes on items for which there is a demand (food, for example, and utilities) is not going to magically make people buy more with their limited income and saved cash. Making cars and TVs cheaper overseas isn't going to increase Taro Suzuki's confidence in the future, either, when he's sadly looking at a cabbage or package of butter that he can no longer afford.

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nigelboyNov. 06, 2014 - 10:21AM JSTI still don't understand your point. Japan went on and experienced a native bubble and exploded thereafter. Why would anybody want to go back to that?

So what does it mean? If you would've invested $100,000 in Nikkei stocks in 1986, it has not gained at all by 2014. If you invested same amount of money in 1986, your U.S. NASDAQ stocks would've doubled or tripled your investment. Point is the Japanese stocks have become the most undesireable to investors. Unlike U.S. companies, they have not adjusted to increase in dividend to attract new investors.

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A lot had happened since and most notably the rise to 1,700 level as well as the recent financial release of Toyota on the verge of recording the largest operating profit amount in their history.

nigelboy -- you are still making that lame argument that the fact that the Nikkei has risen since Abe took office has anything at all to do with improving the overall long-term health of the Japanese economy, and that it has something to do with this article, which is about the 2% inflation target. That is simply wrong.

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nigelboy -- you are still making that lame argument that the fact that the Nikkei has risen since Abe took office has anything at all to do with improving the overall long-term health of the Japanese economy, and that it has something to do with this article, which is about the 2% inflation target. That is simply wrong.

I'm sorry but this all went off tangent by the second comment then. Perhaps it's best to address that individual. Meanwhile, what BOJ is doing is what the Feds have just finished doing in reference to monetary policy. Simple enuff for ya?

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Perhaps it's best to address that individual.

No, you made the post I quoted. Which, as usual, has absolutely nothing to do with whatever economic topic is being discussed, just like:

Meanwhile, what BOJ is doing is what the Feds have just finished doing in reference to monetary policy.

So what? Again, how does any of that relate to the BOJ 2% inflation goal?

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So what? Again, how does any of that relate to the BOJ 2% inflation goal?

To combat the deflationary spiral. So to answer your question, everything.

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I just love paying more just to eat while parasites like Corroda (sic) live offa my tax money!

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Me: The BOJ's actions aren't doing much expect making those in bond markets happy.

Whether the BOJ's actions have that effect or not I don't know, but keeping the bond markets happy also keeps all the families with a mortgage to pay off happy. They may not know it now, but if their monthly mortgage repayments went up, I imagine it would probably have greater negative effect on consumption than the sales tax hike did.

The BOJ's asset purchases only benefit a select group of people. The overall benefit to the family with a mortgage, or rent to pay is next to zero, at best.

The problem with an increase in the consumption tax is that it hits the very people who need to spend more. In similar fashion to America or Europe, quantitative easing has benefited big businesses and wealthy individuals owning shares or property in Tokyo and a few other big cities. But ordinary Japanese, notably in the regions that are emptying of people, feel left behind. Support for Abenomics is slipping as more people feel there is little in it for them

The Economist

http://www.economist.com/news/asia/21631106-prime-minister-has-been-given-opening-will-he-take-it-riding-rescue?fsrc=scn/fb/wl/pe/ridingtorescue

The yen's devaluation also translates into increased costs, as does the sales tax. Businesses of all kinds have to raise prices on everything from paperclips to automobiles to maintain profit margins. Meanwhile, consumers have to pay more on stagnant salaries.

Moreover, it's not just discretionary purchases that are affected. People, literally, have to pay more to eat, commute to work, use essential services, send mail, etc. Tax hikes won't make paying those things, including mortgages, any easier.

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