Yen weakens as BOJ eases monetary policy

Another nail in the begger thy neighbour coffin policy being pursued by most major world economies. The difference is that Japan will be running trade surpluses again by March and any weakening of the Yen, like the currency intervention, will petter out very quickly.

I'm all for the Japanese encouraging inflation, but the problem with most of the quantative easing since 2008 in most of the world is that the money hasn't dribbled down to the end consumer and stimulated consumption. This 10 trillion will follow a likewise path and be hoarded by the banks to counter bad loans to EU countries and used by Japanese multi-nationals to supplement their domestic institutions, as they refuse to rehabilitate foreign profits home because of the high yen.

What a mess.

Additional easing by a central bank increases the supply of money in the economy, therefore weakening the currency.

Just an idea, why not give everyone 1,000 yen? With Japan's population at around 30 billion, that's about 30 trillion yen injected into the economy. Won't that weaken the yen further?

elvensilvan,

I think you need to go back tot he drawing board as far as the number of people who live in Japan, LOL!

Just an idea, why not give everyone 1,000 yen? With Japan's population at around 30 billion, that's about 30 trillion yen injected into the economy. Won't that weaken the yen further?

It would be counter productive as the buying power of that 1,000 yen would end up being maybe somewhere around 100 yen and deflation is easier to control than hyper inflation.

@elvensilvan - they already tried it a couple of years ago, giving everyone between 12,000 and 23,000 - no impact at all!

@elvensilvan - they already tried it a couple of years ago, giving everyone between 12,000 and 23,000 - no impact at all!

Actually it was twice if I recall correctly the first time was in the early 90's and the government distributed something like gift certificates that had to be used within a set period of time. Same results no impact.

The solutions for Japan are political, rather than financial. The political solutions are long term and deep, involving a complete restructuring of Japanese society.

Unfortunately the Japanese political classes are the most incompetent section of this society.

Nothing short of a 'Japanese Spring' on the scale of Indonesia 1998, will remedy the dire political situation of Japan and thus produce an economic solution.

Sorry it was the late 90's, then PM Obuchi.

i hope people realize when inflation increases, it is the equivalent of a consumption tax increase as you are paying more yen for the same item you bought last month. So with this monetary easing, the govt is basically manipulating you into paying a higher consumption tax without your knowing it. If the dumb govt wants to strengthen the yen, how about fixing the fundamental structure of the economy first before all of this manipulation.

Inflation + low growth= stagflation, which is much much worse than deflation imo.

The unit softened to 102.55 against the euro, compared with 102.34 late Monday in New York, while it also weakened to 77.91 against the dollar, from 77.58.

..slightly strong winds can bring that much movement, was it worth for BOJ to use Y10 tri. :)

Allow further loans to foreigners also

Already groaning beneath a tottering mountain of debt, the kind that other countries have wisely begun deleveraging from, our fearless leaders elect to throw caution to the wind by taking on yet more if it. We`ll know the jig is up when deposit interest rates begin climbing and the money being shifted offshore becomes a torrent.

Japan will be the next Greece in the next couple of years as they can no longer sell their debt internally. After 20 years here, I am selling up and moving on. Good luck guys!

Good| Bad ironchefFeb. 14, 2012 - 04:24PM JST

If the dumb govt wants to strengthen the yen, how about fixing the fundamental structure of the economy first before all of this manipulation.

I think strengthening the Yen is the last thing the japanese government wants to.

Inflation is only the enemy of those on cemented incomes. A little bit of inflation in the Japanese economy would be a breath of fresh air. The Dankai generation would be compelled to actually use the pot of gold they sit on. Maybe in a detrimental way, as Oyatai commented, but the racism of Japanese society, ensures that won't happen - a bit like non tariff barrier.

Your definition of stagflation is rather mistaken. Government financial policy has little bearing on stagflation -contrary to Friedman's rather shakey conclusions, based on his study of Californian rent rises in the early 1960's - and is determined more by the prices of essential raw materials.

The really sad thing about Monetarists is not the discovery that the emporer is wearing no clothes, but that his subjects still think he has the most beautiful clothes ever worn, long after the event.

The BOJ's intent is good, but without the economic and social reforms, they are going nowhere. The BOJ is being used as the punch bag by the japanese political elites, while the Japanese political elites are really at fault.

The really sad part of this news is that the BOJ gave in to bullying.

Dog -- your posts are spot on, as usual, on this subject. Like most things Japan has done of late to try to correct the massive problems in its economy, this is just spitting into the wind. Because, as you say, they are totally unwilling to make the massive structural changes needed. Like Einstien said: "The definition of insanity is doing the same thing over and over again and hoping for a different outcome". But that is what defines Japanese economic policy for the past two decades.

The GoJ has a very fine balancing act they must do... weaken the Yen enough so they can export more goods (its economy is hugely based on exports!) but at the same time, not weaken it enough so that its energy import costs aren't prohibitive.

and I find it even more amusing (I can't think of a better word) that domestic holders of Gov't bonds are willing to accept the insanely low rates as an investment device. I guess there is a reason why most of Japan's debt is being held "in country"

Dog, what are your thoughts on that?

and I find it even more amusing (I can't think of a better word) that domestic holders of Gov't bonds are willing to accept the insanely low rates as an investment device. I guess there is a reason why most of Japan's debt is being held "in country"

The bulk of the holders are domestic financial institions. They aren't lending so the excess deposits goes to purchase of bonds. Even with the low return on the bonds, it's high enough to pay out the interest to the deposit customers. This essentially is the by-product of the deflationary spiral that Japan is in right now.

Perhaps increasing the inheritance tax at punitive levels would force these old timers to spend their life savings.

ironchef

i hope people realize when inflation increases, it is the equivalent of a consumption tax increase as you are paying more yen for the same item you bought last month. So with this monetary easing, the govt is basically manipulating you into paying a higher consumption tax without your knowing it. If the dumb govt wants to strengthen the yen, how about fixing the fundamental structure of the economy first before all of this manipulation.

That's not correct. Inflation tends to be strongly linked with wages, so if inflation increases, wages tend to increase faster. There's a simple reason for that, inflation means that products cost more, but as products cost more, workers demand higher wages and as companies have more revenues as they earn more from the sale of their products, they are inclined to give in to these wage demands.

All in all, it tends to be a wash. What changes is the assets with fixed yields and debts like mortgages. When inflation increases, the value of these assets fall and the real yield of these investments, and the real interest rates of the debts, fall. For an economy with a surplus of debt that burdens economic actors (what Richard Koo labels a "balance sheet recession"), inflation is very welcome, as it helps the economy purge the surplus of debt.

Inflation + low growth= stagflation, which is much much worse than deflation imo.

I disagree very much. As I mentioned, inflation helps purge debt out of the system, but deflation does the opposite, it makes debt heavier because the value of every unit of currency increases. Private debt is the biggest anchor on an economy that you can find. The Great Depression was brought about by 4 years of high deflation with a recession. The only phenomenon of stagflation we know of was in the 1970s, and by objective criteria, it wasn't that bad.

The unemployment rate didn't jump up even near the level of the 1930s, growth in real GDP wasn't that low. The reason why people remember it so bad is the oil shortages, but they were brought by the OPEC limiting production, not because of internal economic factors. It only started really hurting when central banks raised interest rates and engineered a major recession to bring inflation under control.

Yubaru

It would be counter productive as the buying power of that 1,000 yen would end up being maybe somewhere around 100 yen and deflation is easier to control than hyper inflation.

Japan is very far from hyper-inflation. Historically speaking, hyper-inflation has only ever occurred when an economy was crashing, with real output declining sensibly, and the government tried to counter this collapse by printing money. Without a crashing economy, hyper-inflation cannot appear and I don't know of any case where high inflation brought low an economy that was healthy or stable to start with.

They think this will help their exports, because with a devalued yen their products will be cheaper in other currencies. But then again, the raw materials they buy, since Japan has few natural resources, will be more expensive, because the yen is weaker. So eventually the prices of their exports will creep back up, leaving them right where they started, but with inflated prices inside Japan. This is clearly a move that can only work in the short term, so it seems to be politically motivated, rather than by any sound economic reasons.