E-mail:    

MONETARY POLICIES

Japan, another "Lost Decade"

Japan, another, Lost Decade, Monetary Policies, Shinzao Abe, JPY, fx trader, forex

Since 1885 and start of Prime ministers, Shinzao Abe is the only prime minister of Japan to ever serve two terms, 2006 to 2007 then from 2012 to present. Abe served from 2012 to 2014 then won reelection in 2014 and remains current prime minister. Kurodo's appointment April 9 to a second consecutive term is a first since  BOJ appointment began in 1882. Eikichi Araki is the other to serve two terms but not consecutively as terms ran from 1945 to 1946 then 1954 to 1956.

Why Kuroda V Shirakawa is a policy rather than ideological  issue as Kuroda sees the virtues and successes to the current QE/ Yield Control program while Shirakawa stated publicly otherwise.  Abe, Shirakawa and Kuroda actually hail from the Southern Prefecture of Fukuoka and all are, I believe, members of the current ruling conservative LDP Party. Fukuoka's current 5 million population is matched only by Hokaido prefecture then surpassed by Chiba 6 million, Aichi 7 mil, Kanagawa and Osaka with each 8 million. The policy difference is seen in the replacement of Takahide Kiuchi with Hitoshi Suzuki and the February Kiuchi speech.

GDP says Kiuchi will likely achieve 0.5 to the reporting period in fiscal 2018. His overall skepticism and why he sees risks to the downside is the Output Gap closed and remains neutral therefore 0.5 is viewed as a best case scenario. GDP growth rate projections are higher only to reflect a lower JPY and continued improvement in overseas economies.

Current Japanese economic drivers are exports and low JPY. A decline in world economies and higher JPY then exports flounder and GDP will fail to see a 0.5 target. Kiuchi fails to see the 2% Inflation target achieve as it assumes prices and wages tracks higher and this explains his persistent no votes on the BOJ board both on the overall JGB program and policy proposals to purchase Reits, ETF's  and Commercial Paper.

As Yield Control entails JGB 80 Trillion Quantity purchases at a minus 0.1 interest rate on balances and Interest rate targets and 0 on the 10 year JGB, Kiuchi actually forecast neither targets in quantity purchased or 10 year Interest will achieve. Purchases will actually drop. A shock to the economic system as in negative / positive or  in world markets then the chance of program success lessens as JGB yields skyrocket or suffers a massive drop. A higher USD 10 year poses the first challenge to the Abe/ Kuroda program.

Kiuchi's main argument dating to the Aug 2016 minutes and every meeting since is the stability and sustainability of the JGB market as the overall BOJ goal is expansion of the Monetary Base to 80 Trillion. The program goal is long run and runs to infinity until  economic goals are achieved or until possibly when the BOJ concedes defeat. 

Every Kiuchi proposal brought to the BOJ board since August 2016  to tweak the program  was roundly defeated by  votes exactly of 7 - 2. One example is sell current JGB holdings and purchase only 45 Trillion per month against a 7 year average maturity. The BOJ reports in the February minutes the Monetary Base growth rate Y v Y is growing at 20 to 25% and rate of growth in the Money Stock at 4%. The money stock growth rate in September was 3.5% and 3% to 3.5 in November.

Next>>