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Japan move shows limit of central bank powers

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"... another exotic weapon ...."???

Maybe this is that secret (last) arrow before everything goes down the drain?.

2 ( +3 / -1 )

Central banks cannot generate growth. They can only print money and regulate interest rates.

The only part of the economy which can create net growth is the private sector. But as long as the government consumes too much of what the private sector produces, and in the process devalues the money the private sector uses to do business, growth will not occur.

We need some kind of prize which is 180 degrees different from the Nobel Prize. A prize for fools and foolish acts to shame the fools and those who act foolishly. Most of the winners would be central bankers and the so-called economists whom they employ.

5 ( +8 / -3 )

Companies are not going to start spending their cash piles—either by investing or boosting wages—until they think there are consumers willing to buy the goods and services they are selling.

It's ok, based on our wise leader, robots and AI will fill the void soon

2 ( +3 / -1 )

Companies are not going to start spending their cash piles—either by investing or boosting wages—until they think there are consumers willing to buy the goods and services they are selling.

These "cash piles" companies are sitting on are almost entirely derived from capital gains created by the current QE driven stock bubble. And when this bubble pops, those gains will be wiped out, leaving nothing to invest or boost wages with.

And it doesn't matter if customers want to buy goods or services or not, because the dwindling pool of customers from the current free fall in population guarantees a negative return on domestic investment. And vastly increased competition from aggressive competitors for the export market are not going to guarantee returns from that quarter either.

The structure of the Japanese economy needs to be rebuilt, as it is in the slow process of collapse. But the central bank and Abe aren't doing anything to rebuild the structure, it is simply whitewashing it.

3 ( +5 / -2 )

That’s where the structural reforms promised—but not really delivered—by Abenomics should come in.

AFP gets it right for a change. Well done AFP for catching on!

Japan’s woeful demographics

I get a little tired of hearing about this. Yes, the demographics don't help, no doubt.

But just because demographics are poor doesn't mean there aren't opportunities for growth (if the central planners would only get out of the way). If a business creates a new hit product, I personally guarantee that it will find plenty of buyers in Japan, despite the shrinking, ageing population and supposedly nasty deflation.

And if we get a big bunch of businesses creating new hit products, things could look markedly better than they do.

We just need the central planners to get out of the way, as pointed out by AFP. But in Japan, this is a big ask for the gutless politicians.

5 ( +5 / -0 )

Hmmm, you need more demand and yet keep paying peanuts,,, I am probably no genius, but you need to start paying your workers, i.e., your customers, more so they can buy your stuff.

2 ( +4 / -2 )

Central Banks and fiscal policy cannot create more people. Japan has a demographic problem to go with its badly mismanaged economy.

3 ( +4 / -1 )

Hmmm, you need more demand and yet keep paying peanuts,,, I am probably no genius, but you need to start paying your workers, i.e., your customers, more so they can buy your stuff.

You have the formula backwards here, and are using the same reverse logic the BOJ is using to try to generate growth. Money does not create demand for products or services, demand for products and services creates money.

If you raise salaries to your workers, i.e., your customers so they can buy your stuff, you have to raise the prices of the stuff you sell, which causes customers to buy less of it, which in turn negates the value of the increased wages. You need to remember that 70% of domestic Japanese companies earn no profit, and those who do don't make that much. 99% of businesses in Japan are not major car companies, they are smaller factories, stores, shop, and restaurants. And you'll find that in some of these shops the owners earn less than their staff, and many cannot afford to pay any staff at all. These businesses cannot simply raise wages without losing or earning less money than they already are.

0 ( +4 / -4 )

Piles of retained corporate earnings, with workers barely seeing any salary raises. Yeah, that's a formula for success. Japanese corporations saw record profits last year, thanks to govt reforms on governance and other measures promoting shareholder capitalism.

Time for the govt to get the crowbar out and force the corporates to pay wages in line with their earnings.

0 ( +2 / -2 )

Article says: "stagnant or falling prices for much of the last quarter of a century." Such Bullshit. I've lived here more than 10 of those years. Sure, the price index (that the government prepares) says there is no inflation. Prices have been slowly increasing the whole time I've been here. When prices are stable, the quality and/or quantity of the product is decreased instead!

I say again: There IS and HAS BEEN recent price inflation within Japan; it's just not enough to make the government happy picking our pockets with monetary trickery (which is all that inflation is). Prices on food, clothing, housing and other necessities have gone up every year; but not salaries! When Central Bank-run Governments REALLY need more of our money, why can't they just honestly raise visible taxes, instead?

2 ( +2 / -0 )

As I said before, the only real success of Abenomics is totally a non-Abenomics successful activity: tourism. Tourists are THE ONLY thing keeping Japan's economy from sinking, and Abe doesn't even count that in his Abenomics plans. I guess because it's not Japanese.

3 ( +3 / -0 )

The Japanese people are the most careful people in the world, they are no more the people that think abt rising prices and buying things to save money.The rich is rich and the middle class have disappeared.In this century, the JAPANESE have 75% of their people travelled and are well -informed. Japan is now like any other advanced South East Asia country. The old methods will not work. In my opinion, the Gov't have to make sure that not only must he big companies make money but the medium and small companies too. 75% of Japanese economy is run by Medium and small companies. If these are not working well, anything the Japanese Gov't do will help no one. People are not fools, they need their monetary safety first before anything else. I thought it was very clear to anyone ???.

2 ( +2 / -0 )

Dame-nomics has been absolutely discredited by all bar the mainstream media (except for Okinawas,) who have been utterly brow beaten by the PM and his cronies,that all we keep hearing about is another bent arrow doing nothing productive.Four years of his premiership is coming up.How long until the media get some conjou and tell it like it is?

2 ( +2 / -0 )

Japanese corporations saw record profits last year,

They saw record capital gains last year. If you remember, GDP growth last year was essentially nil, meaning that Japanese companies did not experience any growth in sales or sales-derived profits. And growth this year is nil as well. And, once again, if you subtract the losses incurred by these companies you mention, even these paper gains which make up the majority of the cash you speak of, they will still have their heads under water. Read these companies financial reports going back as far as you can find them, as I have, and do the math yourself.

These capital gains were enabled by the central bank flooding the market with easy money. The companies issue debt to borrow money, and use this money to buy stocks. This drives up the price of stocks. But in the absence of any growth in sales or sales-driven profits, these stock values will plummet if the central banks stop pouring money into the economy, or raise interest rates.

And this is why the stock market now pays more attention to central bank meetings than it does to profits reports and sales figures, and why the stock market surges or falls whenever a rumor of a rate cut or rate hike is announced.

The population of Japan will fall to under 80 million by 2050, at least according the the MITI reports that I had a hand in working on. They also predict Japan falling to the world's 5th or 6th larges economy. It is highly unlikely that any company would invest any money in such an environment, unless they are building coffins or cemeteries. Any company that has any real capital to invest will either invest it outside Japan, or sit on it in the likely event of the hard times to come.

3 ( +4 / -1 )

@sangetsu03

"...the central bank flooding the market with easy money."

The money doesn't "flood the market." The money is used to buy assets from commercial banks, and then is deposited in those banks as their reserves, until the banks decide how to use it. The banks' bottom line is unchanged. That's why the "flood" of "easy money" doesnt create inflation, as everyone - except me and a few others - predicted.

As for Japanese record corporate profits, you're living in a fantasy.

http://www.tradingeconomics.com/japan/corporate-profits

-2 ( +2 / -4 )

Perhaps BOJ execs should've studied economics outside of JLand. Then maybe, just maybe, they would have a clue.

2 ( +2 / -0 )

This article is a summery of an interesting article by Lambert Strether on the Genever Report on World Economy and the "The Danger of Lower Bound". I recommend anyone interested in this track the report down.

0 ( +0 / -0 )

The money doesn't "flood the market." The money is used to buy assets from commercial banks, and then is deposited in those banks as their reserves, until the banks decide how to use it. The banks' bottom line is unchanged. That's why the "flood" of "easy money" doesnt create inflation, as everyone - except me and a few others - predicted.

It has caused inflation, you need only look at the stock market. The market doubled in value after a combination of QE, stimulus spending, and zero interest rates. The market did not double in value because companies doubled their sales, and doubled their sales-derived profits. Then you have to take into account how stocks are being driven up by the BOJ buying ETF's. At the current purchase rate, the BOJ will be the largest shareholder of Japanese stocks in 2 years or so, right?

This is all another form of the trickle-down economics you hate. Supposedly higher stock prices would lead to to higher capital gains and market capitalization, which would lead to growth-related investment. The problem is that it was not a lack of monetary liquidity which was limiting investments or growth, the problem is an economic environment where there are no opportunities for investment or growth. If a farmer's fields are becoming smaller every year, doubling his supply of seeds is not going to result in increased crops.

2 ( +3 / -1 )

@I say again: There IS and HAS BEEN recent price inflation within Japan.

Correct. Some examples: taxi fares, Starbucks coffee, most food (butter, bread, yogurt)..., newspapers (if you buy them), text books, "discount" movie tickets...

1 ( +1 / -0 )

@ sangetsu

I agree with everything you said. Unless there is a sweeping tide of innovation in renewable energy products or robotics, I doubt the 1980's are returning.

I'm fairly sure the grand plan is to collapse the system and introduce a global world order such a one world currency.

2 ( +4 / -2 )

The global problem stems from a financial model that became popular in the Regan era in the states. It is based on the creation of wealth from the interest charged on debt. However, when individuals can not afford to take on more debt and companies refuse to use debt to expand as has happened since the 2008 crash then the Regan model stops working. So why are Central banks keeping interest rates low? Government borrowing. Our elite political class have been on a spending spree for years, buying favour and awarding contracts to their business contacts instead of managing their economy. For many governments an Interest rate of only 4% on their debt would cause a default and yet they still cling to the idea that wealth is created through debt. Since Government borrowing is now so low they should use it to drop money into the pockets of the people through massive tax reductions and corresponding deep cuts to Government spending. The people will spend the extra cash as there is no point saving it when rates are so low. By spending the economy will start to grow as companies profit from the goods and services being purchased. The extra activity in the economy will in turn see the tax take from corporate profit rise putting money back into the treasury. The elite do not like this idea as it puts money into the pockets of the many and not into the pockets of the few through large scale infrastructure projects and other wasteful government ideas.

1 ( +2 / -1 )

@Sangetsu03

"It has caused inflation, you need only look at the stock market."

Ah, nice, your argument contradicts all the expert consensus about the deflationary state of affairs in developed countries. Unbelievable. Anyway, my friend, that's asset inflation you're talking about. My comment was very obviously was about consumer prices. Again, unbelievable.

I'm old enough to remember the 1970s, 80s, when banks had to give savers double-digit interest rates just so the savers could keep up with the inflation. You have no idea if you think today's price trends are anything like they used to be like.

"the BOJ will be the largest shareholder of Japanese stocks in 2 years or so, right?"

That's quite a claim. The BOJ now owns 1.6% of the nation's total capitalization. What's more, throughout the world, state pension funds, soverign funds, etc, have long been among the biggest institutional investors, in all sorts of countries. How come that hasn't caused a crash? Nice consirpacy theory there. Too bad the basic facts get in the way.

-1 ( +2 / -3 )

Yeah, sorry, but the "promise you'll pay more in the future will lead to more spending" didn't work then, and it won't work now. I'm only going to focus on saving more (and not in banks here).

3 ( +3 / -0 )

Ah, nice, your argument contradicts all the expert consensus about the deflationary state of affairs in developed countries.

Tell me, how much net sales increase Japanese companies have seen since 2012. How much have their sales-derived profits increased? 1%? 2%? And with essentially no real improvment in sales or sales-derived profits, their stocks have doubled in value? And how correct has the "expert concensus" proven over the past 8 years?

I'm old enough to remember the 1970s, 80s, when banks had to give savers double-digit interest rates just so the savers could keep up with the inflation. You have no idea if you think today's price trends are anything like they used to be like.

Oh, but I do remember. I opened a savings account a California Federal in 1978, and they gave me 15% interest on my money. Do you remember why inflation was so high at the time? It was because after leaving the gold standard, America began to print money to pay it's bills. The first experiment with the fiat currency system you so like was a disaster.

That's quite a claim. The BOJ now owns 1.6% of the nation's total capitalization. What's more, throughout the world, state pension funds, soverign funds, etc, have long been among the biggest institutional investors, in all sorts of countries. How come that hasn't caused a crash? Nice consirpacy theory there. Too bad the basic facts get in the way.

How much stock would the government have to own to be the majority owner in the Japanese stock markets? 4%? 5%? They'll reach that point in two-to-three years, right? The reason other investments have not caused a crash is because the investments are relying on the good business practices of the companies and funds they invest in for a positive return. They carefully choose what to invest in. Japan's investments are not to earn a positive return, but to keep their partners in Japan Inc. afloat, and to support the stock market until a Abe can summon a magic unicorn carrying a bunch of arrows to shoot into the economy and make it grow. Which companies has the BOJ bought shares in? The ETF's they have bought up are mainly the top tier companies in Japan Inc. Am I wrong?

0 ( +3 / -3 )

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