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BOJ increasingly likely to cut price forecasts

By Leika Kihara

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The Bank of Japan looks increasingly likely to cut its inflation forecasts next month, sources say, making its target of 2% in the year from April look ever more ambitious, just three months after it eased monetary policy to keep the goal in sight.

Barring a sharp rebound in oil prices, the BOJ may slightly cut its core consumer inflation forecast for the current fiscal year from the 1.2% projected on Oct 31, which took into account the new monetary stimulus, according to four sources familiar with the bank’s thinking.

In other words, as myself and others stated many times over the past several months, this "inflation" target was all smoke and mirrors, and had nothing at all to do with an actual rise in demand in the economy. The BOJ's "inflation" was simply going to be a result of de-valuing the yen, which made fuel costs rise dramatically. But with the global drop in oil prices, that 2% goal is history. Inflation based on real pent-up consumer demand would potentially help the Japanese economy, but creating this false sense of inflation is just foolishness.

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Just yesterday JAPAN Today reported that KEPCO is raising electricity rates, now they report electricity rates are falling. Anybody see their rate falling?

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Many in the bank prefer to wait at least until April, when there is more clarity on whether Japan’s employers will respond to Abe’s urging to raise salaries in the spring wage negotiations.

They are hopeful that economic growth will overshoot expectations next fiscal year as exports pick up and companies boost capital spending. Abe’s decision to delay a scheduled sales tax hike next year also eases the pain on households.

This ^^^^

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Given data showing Japan slipped into recession in the third quarter, the BOJ is also seen cutting this fiscal year’s economic growth forecast to around zero from the 0.5% expansion projected in October, the sources say.

So the economy is at best flat, and they are not going to hit the inflation target -- Abe and Kuroda are doing a smashing job.

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But why would any investors buy a Japanese bond, when the J-government plans to double the money supply in less then few years? You’re bond is most likely going to be worth half as much by the time it matures. Maybe its Japanese loyalty, but more likely there printing money and buying the bonds themselves. The Japanese debt is to high and can’t be paid off without serious pain, so the J-government wants to inflate its way out by printing money “double the money supply”, but they can’t just pump it into the Japanese society without massive inflation and sky rocketing yields so they use it to buy the bonds themselves and suppress the yields, but that only creates more debt? which already can’t be paid off.

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I remember the article about whether Kuroda would be seen as a genius or a madman for his money policies, and it seems pretty clear from the fact that he constantly has to reevaluate his predictions despite wasting our money and increasing all our costs that, and it's no surprise really, the madman label seems far more apt.

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The bad part is that the government planned this year's budget assuming there would be 2% inflation. This being the case, they will be less able to pay down the money they spent, as they counted on being able to inflate away part of it. It is kind of liking buying a car or house you can't afford, because you expect to get a raise in pay next year, but then the raise doesn't come, and you find yourself having difficulty making your monthly payments.

In addition to this, the government was expecting a fair amount of GDP growth this year as well. This appears increasingly unlikely. Without inflation, or any net growth in GDP, all we have to show for trillions of yen in stimulus is decreased economic activity, and a stock bubble funded by low-interest easy money, little or none of which will find it's way back into the domestic economy if the bubble should burst.

The government continues to operate with a staggering amount of incompetence, yet it will be reelected into power because there is no other option. And even if the DPJ or another opposing party were to take power, they would end up doing the exact same thing. Politicians wear many coats, but they are all the same inside.

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choskyite: Oil prices may be falling, but electricity prices are going up to pay for increased donations to the LDP. Why else do you think there has been a sudden halt in the growth of solar power installation?

But I'm surprised the inflation figure isn't moving: food prices have shot up, as have utility bills. I guess the complete and utter failure of Abenomics is to blame, by killing demand. I know: let's vote the clown back in so he can do even more damage. A perfect example of Japanese "gaman".

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The point is that not only there is no need for Japan to reduce its debt because it has no problem refinancing it but deleveraging during stagnation / recession is totally nonsense as the Eurozone is teaching … Imho the central issue is that or Abe is a very smart politician or he is a very stupid one: increasing the VAT in April could not give any different outcome despite any effort spent the BoJ … Japan just like Eurozone is already in a liquidity trap hence no matter how cheap is the credit, the internal demand will not restard without a fiscal stimulus … and Abe did exactly the opposite … why in your opinion ? If he is stupid, he simply has no idea how things work … But I don’t absoultely think he is stupid, on the contrary I think he is a sly guy and he planned since the very beginning to make the situation more difficult while his opponents are weak to call for snap elections and improve his position in the Lower House …

Even if the central bank can’t do anything important in a liquidity trap, Kuroda has always been at the center of the scene: media spent a lot of time speaking about the trillions of yen printed by the central bank and very little about Abe fiscal policy … Imho because of this, normal people is blaming Kuroda, not Abe, for the poor results in the deflation fight until now …

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Poor StormR, you had a good point, yet are voted down. People here really misunderstand economics.

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BOJ Governor Haruhiko Kuroda is intelligent, B.A. in Law, at University of Tokyo followed M.Phil. in Economics, University of Oxford, however Haruhiko Kuroda career is in public institutions with a stint as the President of the Asian Development Bank but no private sector experience. I am told this is common. One fact is painfully obvious he is not independent. Kuroda needs Shinzo Abe to restructure government, employment, farming/agriculture, and energy as the final chapter of abenomics but Abe san just won't commit to even start it. Kuroda needs to confront Abe and politely threaten to resign. He has an impossible task.

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Poor StormR, you had a good point, yet are voted down. People here really misunderstand economics.

Thanks elkarlo, there are only one or two on here who understand the overall situation, they look in their pay cheque and see no improvement so blame abe .

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The first round Abenomics failure is due to Abe tax hike happened in April … as simple as it is. Kuroda is simply doing smoke and mirrors to confuse media and people … Abe is exploiting this situation to improve his position in the Lower House by means of snap election now he is still popular

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Well lets see if after abe gets re elected he can make the hard calls and deregulate some things in the new year , change the things that need to be changed.

Maybe that is why he is consolidating his power, preparing to upset a few stalwarts so as to restructure government, employment, farming/agriculture, and energy as the final chapter of abenomics.

I hope this is what he is up to , getting ready to fire the third arrow.

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Hi, Nicola Bernini, I find this article a little unnerving, family have a business, to cut a long story short what is essential is being able to plan a clear business strategy, and implemente the strategic business plan, skilled staffing, new plant and tooling. The government won't make plain its medium term policies on tax and employment reform, half the workforce are on temporary contracts because domestic customers are struggling to pay bills. The tax hike didn't help and some businesses are swallowing the rise. It would have prudent for Abe to have campaigned clearly his plans for reform. At this moment all we know is the planned tax hike has been postponed.

The Yomiuri Shimbun... Appeal of manifestos fades across political spectrum


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Hi itsonlyrocknroll, so you are blaming Abe because he is not expressing clearly his reform plan right ? Actually I suppose his hidden agenda is something like the following one. He wants to slightly improve protectionism for Japanese Economy by means of Yen devaluation. Indeed if he would increase internal demand by meand of fiscal policy, it will result in being flooded by imported goods (i.e. Chinese ones) hence growing huge trade deficits … and that’s not good. Yen devaluation will grow Japanese goods competitiveness with respect to the other ones thus later increasing internal demand with fiscal policy will not result in the above mentioned trade deficit. Obviously the necessary condition to trigger the latter phase is the yen devaluation to substantially increase the import prices and maybe it is slowly happening (I’ve read the Yoshinoya beef bowl price is getting more expensive because of US / Australian imported beef price increase caused by the yen devaluation) Low oil price will help …

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Thanks Nicola Bernini, Abe san just finish what he started, reform if the labour market, less government, negotiation with the agricultural, dairy and farming sectors on restructuring food production. Review and national debate on energy, clean and nuclear restarts. Clear presentation before polling day. If it is bad news then say so, I will vote for honest and clear policy.

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Dear itsonlyrocknroll, well I really like Abe san and when I have said he has a “secret agenda” I did not want to blame him for this, actually I think it is absolutely normal for politicians …

Full disclosure of plans is never a wise idea because opponents can develop a strategy against it.

I agree with you about his official agenda and he is surely going to address key problems in Japan development but I think he wants to do this with a stronger position in the Lower House hence he developed a smart (sly) plan to get it.

I see nothing bad in this strategy and “not telling the whole truth” is perfectly normal for standard people, even more so for politicians ;)

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Nicola Bernini, I believe Abe san will propose a tax raising measure earlier rather than later. StormR deregulation angle is interesting because Abe could politically sell this to LDP core voters whilst offering to retain some of the grants and subidies to the pacify the powerful lobby groups who represent a legion of vested interests.

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