Monday, January 21, 2013

Japan's Debt Bomb Delayed Somewhat, As BOJ Targets 2% Inflation But Open-Ended Asset Purchase of 13 Trillion Yen (US$145 Billion) Per Month Delayed Till 2014

Financial and fiscal insanity has been the norm since September 2008. Japan is merely a lap or two behind, now frantically trying to catch down with the US Fed and the ECB in cheapening the currency and going full-speed on further fiscal profligacy.

Bank of Japan just announced the result of its two-day deliberation on monetary policy. It will officially target 2% inflation, and unlimited quantitative easing through asset purchase of whopping 13 trillion yen (145 billion US dollars, take that Helicopter Ben!) per month, but the latter won't start until January 2014.

Japan's Nikkei ended slightly down, at 10,709, in mild disappointment that the open-ended QE is not going to start right away.

A token independence of the central bank is gone, as the inflation target will be closely examined by the executive branch of the government every three months.

From Nikkei Shinbun (1/22/2013; part):


Bank of Japan adopted the price stabilization target of 2% after the two-day meeting on monetary policy. A joint communique with the national government is to be drawn up regarding "the joint policy effort between the national government and Bank of Japan to move away from deflation and achieve sustainable economic growth". The target of 2% increase of year-over-year consumer price will be set, and the target will be periodically examined by the Council on Economic and Fiscal Policy [under the Cabinet Office].


In addition to the introduction of price stabilization target of 2%, BOJ decided to introduce a new open-ended asset purchase program using the asset purchase fund. Under the new program, BOJ will purchase assets at 13 trillion yen [145 billion US dollars] per month for as long as necessary starting in the beginning of 2014. The assets will include 2 trillion yen long-term government bond, 10 trillion yen short-term government bills, and the rest of the assets [REIT, ETF, commercial papers, corporate bonds, etc.] will be purchased to maintain the existing balance. As the result, the balance of the asset purchase fund will grow by 10 trillion yen in 2014, and the balance will be maintained thereafter. BOJ decided on this new program by unanimous vote.

Interestingly, Nikkei English article does not mention monthly asset purchase of 13 trillion yen. Instead, it has a piece of information that is not in the Japanese version - that there were two people who dissented at the BOJ meeting over 2% inflation target:

The bank's policy board voted 7 versus 2 at the end of its two-day meeting to introduce the target, replacing its current 1% price "goal," which Mr. Abe had criticized as being too weak of a commitment by the BOJ.

I wonder who they were.

But to call the 2% inflation target as "price stabilization target", that's pure Newspeak. Japanese people will be lulled by the word "stabilization", without realizing it is the past 2 decades that have had excellent price stability.


Anonymous said...

If BOJ prints notes and uses them to buy govt. bonds, won't Japan debt be repaid (by those who hold cash, through inflation)?

Anonymous said...

Yes, history shows that fiat paper money debt is ALWAYS paid through inflation. For the middle-class of citizens, inflation is the hidden tax whereby governments+bankers steal from their citizens will their FULL CONSENT. For the 1%, inflation is how they become wealthy and powerful at the expense of the labor of the remaining 99%.

The only way for the 99% to fight back is to stop accepting the fiat paper money that has been created out of nothing, and put their life savings in physical Silver and Gold instead. History shows this is the only way to weather the financial storms. Gold and Silver are the only sound and honest money that remain.

doitujin said...

i know somebody in japan who plans to change all his yen savings from his bank account to euro/dollar in cash because he doesn't trust the economy at all anymore... is that really recommended now or too much?

arevamirpal::laprimavera said...

Dollar is another pure fiat money just like the Japanese yen, euro is almost all fiat money. They are the ones who's been debasing their currencies for the past four years.

Chicago Federal Reserve used to have an excellent paper in which they explain how fiat currency like the US dollar works, and why all they need is inflation not taxation under fiat currency regime. Quite candid. I wonder if they still have it on their site.

Anonymous said...

No, changing Yen into Euro or Dollar cash is just exchanging one bad fiat paper currency for another bad fiat paper currency. Japan, the Euroland, and the USA are all printing paper money like there is no tomorrow. It would be like jumping from one sinking ship onto another sinking ship, but all will sink regardless.

The only safe protection is exchange of paper money into hard currency (hard money) such as physical Gold and physical Silver. Silver and Gold have been money for thousands of years in human history. They are proven to retain value as real precious metals.

There is a world-wide currency war going on right now... Currency war = To see who can print the most paper money (to inflate away the national debt via inflation). In a currency war, those who hold paper money (paper currencies) will lose the most value.

arevamirpal::laprimavera said...

Let's welcome UK into debasing frenzy! BOE governor Marvin King wants to do more to help save the UK economy from triple recession.

Gold and silver are prone to manipulation by the central banks and BIS. Remember FDR? If you can stomach the potentially huge swing and keep them from the hands of greedy governments and if you can afford it, they are good. Since I cannot afford it, I'm accumulating other tangible assets like food that stores long time and toilet papers. From the history, hyper-inflationary periods don't seem to last forever but several years at most.

Anonymous said...

Don't buy any other fiats yet, there is no clear winner of who will emerge out the other side of the worm hole intact. China, India, Euroland, Russia, US, who survives?

Okay, maybe buy Swiss or Canadian but gold and silver is the safer play and then cash in for the winning fiat when the time comes.

Fenrig said...

The two members who voted against were Takehiro Sato and Takahide Kiuchi.

arevamirpal::laprimavera said...

Thanks Fenrig. So, Morgan Stanley and Nomura Securities guys were against inflation targeting.

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